2019 (4) TMI 554 - AT - Income Tax

Addition on late payment of ESIC and PF contribution - addition u/s.36(1)(5) r.ws 2(24)(x) - as alleged no payment within the stipulated period mentioned in the concerned Act - HELD THAT - As relying on case of M/S CHECKMATE FACILITY AND ELECTRONIC SOLUTIONS PVT LTD. VERSUS DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-1 2018 (10) TMI 994 - GUJARAT HIGH COURT no infirmity in the order passed by the authorities below in making the addition in total on account of delay in depositing the ESIC and PF contribution with the concerned authorities. Hence the ground of appeal preferred by the assessee is dismissed. Addition u/s 14A r.w. Rule 8D - no interest income earned by the assessee - HELD THAT - This is a settled principle of law that when there is no exempt income available with the assessee disallowance u/s.14A r.w Rule 8D cannot be higher than the dividend income earned by the assessee while laying down the ratio the Jurisdictional High Court in the matter of Corretech Energy Pvt; Ltd. 2014 (3) TMI 856 - GUJARAT HIGH COURT further held that if there is no tax free income in the hands of the assessee, then no disallowance under section 14A r.w. rule 8D of Income Tax Rules ought to be made. We restrict the disallowance to the dividend amount of ₹ 10,600/-. Thus the assessee appeal is partly allowed.

Summary

Issues:
1. Addition of ESI and PF Contribution under Section 36(1)(va) read with Section 2(24)(x).
2. Addition under Section 14A read with Rule 8D.

Analysis:

Issue 1: Addition of ESI and PF Contribution
The appeal was filed against the order passed by the Commissioner of Income Tax(Appeals) regarding the addition of ESI and PF contributions. The assessee contended that even though the payments were made after the due date, they were eventually paid to the Government account within a reasonable time. The Departmental Representative relied on a judgment stating that the employee's contributions should be deposited within the specified time frame. The High Court judgment emphasized the requirement of depositing the employee's contributions within fifteen days of the close of the month. The Tribunal, following the High Court's decision, upheld the addition of ?6,99,716 due to the delay in depositing the ESIC and PF contributions, dismissing the appeal.

Issue 2: Addition under Section 14A read with Rule 8D
The second ground of appeal related to the addition of ?1,09,292 under Section 14A read with Rule 8D. The Assessing Officer disallowed this amount based on the formula provided in Rule 8D, despite the absence of any interest income earned by the assessee. The Tribunal noted that disallowance under Section 14A cannot exceed the actual exempt income earned by the assessee. Citing a precedent, the Tribunal restricted the disallowance to the actual dividend income of ?10,600. Consequently, the appeal was partly allowed, reducing the disallowance amount.

In conclusion, the Tribunal upheld the addition of ESI and PF contributions due to delayed deposits, following the High Court's interpretation. For the second issue, the disallowance under Section 14A was restricted to the actual dividend income earned by the assessee, resulting in a partial allowance of the appeal.