2018 (11) TMI 545 - AT - Income Tax

Disallowing the late payment made to employees provident fund - deposit beyond due date - Held that - We note that the Tribunal on number occasions has decided the similar issue by following the judgment of jurisdictional High Court in the case of Gujarat State Road Transport Corporation Ltd. (2014 (1) TMI 502 - GUJARAT HIGH COURT) against the assessee. The jurisdictional High Court in the above case held that where assessee did not deposit employees contribution in the relevant fund before the due date prescribed in Explanation to section 36(1)(va), no deduction would be admissible even though he deposits same before due date under section 43B. Hence we are not inclined to interfere in the order of the Revenue authorities on this issue. Thus the ground of appeal of the assessee is dismissed. Disallowing the interest on the notional basis - borrowed fund has been utilized in the capital work-in-progress - Held that - The issue in the present case relates whether the borrowed fund has been utilized in the capital work-in-progress shown in the balance sheet as on 31st March 2011. As per the lower authorities, the borrowed fund has been utilized in the capital work-in-progress in view of the fact that the accumulated loss of the assessee exceeds the fund of the assessee. Assessee before us has not advanced any argument on this issue. Therefore, we have no alternative except to confirm the order of lower authorities. Hence, the ground of appeal of the assessee is dismissed. Nature of expenses - Purchase of stores - capital expenditure eligible for depreciation or revenue expenditure - Held that - We conclude that the purchase of stores is representing revenue expenditure and no disallowance can be made treating them as capital expenditure. It is also pertinent to note that the AO will disallow the relief given to the assessee by way of providing depreciation on the purchase of stores and will allow the deduction on account of purchase of stores made by the assessee during the year. Hence, the ground of appeal of the assessee is allowed.

Issues Involved:
1. Validity of the assessment order under section 143(3) of the Income Tax Act, 1961.
2. Disallowance of late payment of provident fund amounting to ?28,816.
3. Disallowance of notional interest of ?57,949, treating it as interest capitalized on work-in-progress.
4. Disallowance of purchase of stores amounting to ?9,34,104, considering it as capital expenditure.
5. Charging of interest under sections 234A, 234B, 234C, and 234D of the Income Tax Act.

Detailed Analysis:

1. Validity of the Assessment Order:
The appellant did not press ground no.1, challenging the validity of the assessment order under section 143(3) of the Income Tax Act, 1961. Therefore, this ground was rejected as not pressed.

2. Disallowance of Late Payment of Provident Fund:
The assessee contested the disallowance of ?28,816 for the late payment of provident fund. The Assessing Officer (AO) noticed that the employee’s contribution to the provident fund was not deposited within the due date prescribed under the relevant Act. Following the judgment of the jurisdictional High Court in the case of Gujarat State Road Transport Corporation (366 ITR 170), the AO disallowed the claim. The CIT(A) confirmed this disallowance. The Tribunal, adhering to the jurisdictional High Court’s decision, held that no deduction would be admissible if the employee's contribution was not deposited before the due date prescribed in Explanation to section 36(1)(va), even if deposited before the due date under section 43B. Therefore, the Tribunal dismissed this ground of appeal.

3. Disallowance of Notional Interest:
The AO observed that the assessee had shown capital work-in-progress and incurred interest expenses on borrowed funds. The AO inferred that the borrowed funds were utilized in the capital work-in-progress and disallowed proportionate interest expenses of ?57,949 under section 36(i)(iii) of the Act. The CIT(A) confirmed this disallowance, noting that the assessee did not rebut the AO's findings. The Tribunal found no alternative but to confirm the lower authorities' orders, as the assessee did not advance any arguments against this issue. Hence, this ground of appeal was dismissed.

4. Disallowance of Purchase of Stores:
The assessee incurred expenses of ?13,35,612 on the purchase of stores, which the AO classified as capital expenditure, allowing depreciation and disallowing the remaining amount of ?9,01,508. The CIT(A) partially upheld this view, treating most of the expenditure as capital, except for ?7,300, which was considered revenue expenditure. The Tribunal, upon review, noted that the assessee's substantial fixed assets and regular purchase of spare parts for machinery indicated that the stores' purchases were revenue in nature. The Tribunal referred to the Gujarat High Court's judgment in PCIT vs. Banco Aluminium Ltd. (93 taxmann.com 52), which held that such expenditures are revenue in nature. Consequently, the Tribunal allowed the appeal on this issue, directing the AO to disallow the depreciation relief and allow the purchase of stores as revenue expenditure.

5. Charging of Interest under Sections 234A, 234B, 234C, and 234D:
The issue of charging interest under sections 234A, 234B, 234C, and 234D was not specifically addressed in the Tribunal's order. However, given the partial allowance of the appeal, the interest calculations may need adjustment based on the revised tax liability.

Conclusion:
The Tribunal dismissed the grounds related to the validity of the assessment order, disallowance of late provident fund payment, and notional interest disallowance. It allowed the appeal regarding the classification of store purchases as revenue expenditure. The issue of charging interest under various sections was not specifically resolved but may be impacted by the revised tax calculations. The appeal was partly allowed.

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