2019 (3) TMI 1059 - AT - Income Tax

TDS u/s 194C - payment made to Vehicle Booking Agents who have arranged vehicles for the company on a contractual basis as and when required - addition u/s 40(a)(ia) - HELD THAT - There is no material on record to determine whether expenditure was incurred for payment to contractors, who are in the business of plying, hiring or leasing goods carriage and provisions of section 194C(6) has application. A.O. had also merely mentioned in the impugned assessment order that the payments are made to vehicle booking agents, since there is no clarify as to whether payments are made to contractors or agents, in the interest of justice and equity, we are of the view that the matter needs to be examined afresh by the AO. The assessee shall produce necessary evidences that the payment was made to contractors, who are in the business of plying of vehicles, goods carriages etc. and not to agents as alleged by the Assessing Officer - Decided in favour of revenue for statistical purposes. Disallowance being employees contribution to PF and ESI u/s 36(1)(va) - payment was made within the due date specified u/s 139(1) - HELD THAT - The Hon ble jurisdictional High Court in the case of Merchem Limited (2015 (9) TMI 560 - KERALA HIGH COURT) had categorically held that employees contribution to PF and ESI, if not paid within the due date mentioned in the respective statute cannot be allowed as a deduction u/s 36(1)(va) - We hold that the Assessing Officer has correctly disallowed the sum - Decided in favour of revenue

Summary

Issues:
1. Disallowance under section 40(a)(ia) of the Income Tax Act.
2. Disallowance of employees' contribution to PF and ESI under section 36(1)(va) of the Income Tax Act.

Issue 1: Disallowance under section 40(a)(ia) of the Income Tax Act:

The Assessing Officer disallowed expenditure of ?1,17,36,529 under section 40(a)(ia) of the Income Tax Act for failure to deduct tax at source under section 194C. The CIT(A) deleted the disallowance, citing lack of violation of provisions post-2009 and submission of PAN declarations by the payees. The Tribunal noted lack of clarity on payments to contractors or agents and ordered reexamination by the Assessing Officer to verify if payments were to contractors within the purview of section 194C(6).

Issue 2: Disallowance of employees' contribution to PF and ESI under section 36(1)(va) of the Income Tax Act:

The Assessing Officer disallowed ?54,91,753 for non-payment of employees' PF and ESI contributions within due dates specified by labor statutes. The CIT(A) allowed the deduction based on payment within the due date under section 139(1) of the IT Act and referenced a Rajasthan High Court judgment. However, the Tribunal relied on a Kerala High Court judgment stating that non-payment within statutory due dates disqualifies the deduction under section 36(1)(va). Consequently, the CIT(A) was found unjustified in deleting the disallowance.

In conclusion, the Tribunal partly allowed the Revenue's appeal for statistical purposes, reinstating the disallowance of employees' contribution to PF and ESI while ordering a reexamination of the disallowance under section 40(a)(ia) to clarify the nature of payments made.