2019 (5) TMI 343 - AT - Income Tax

Addition u/s 36(1)(iii) - assessee has not able to proved the nexus between interest free funds and interest free advances - HELD THAT - The internal cash accrual of ₹ 87,84,446/- as profit and ₹ 7,62,94,157/- by way of depreciation during the year under consideration is also evident on record. During the assessment year 2011-12, the assessee has not given any advance to the land lords but in the earlier years advance of ₹ 25,89,060/- was paid out of the total interest free funds available with the assessee. Further the entire borrowing is term loan against capital assets, thus, the borrowing is used for the purpose of business and therefore, the question of disallowance does not arise in term of the ratio laid down in the matter of Taparia Tools Ltd-vs-CIT 2015 (3) TMI 853 - SUPREME COURT . In that view of the matter, we find no justification of the addition made by the authorities below. Hence, the same is deleted. This ground of appeal is thus allowed. ESI PF with regard to contribution by employee u/s 36(1)(va) - assessee has to pay the amount of employee s contribution towards PF/ESI to the Government account within the due date specified in the concerned Act - HELD THAT - The assessee has failed to credit the same within the stipulated time and in that view of the matter considering the judgment passed in the matter of CIT-vs- South India Corporation Ltd. 1999 (10) TMI 44 - KERALA HIGH COURT as well as the judgment pronounced by the Jurisdictional High Court in the case of 2014 (1) TMI 502 - GUJARAT HIGH COURT the revenue has disallowed the amount of Employees Contribution of ESI PF to the tune of ₹ 1,89,774/- and added back to the total income of the assessee. No infirmity in such order passed by the authorities below hence assessee s ground of appeal fails.

Summary

Issues:
1. Addition under section 36(1)(iii) of the Income Tax Act - Nexus between interest-free funds and advances.
2. Disallowance of ESI & PF contribution under section 36(1)(va) of the Act.

Issue 1: Addition under section 36(1)(iii) of the Income Tax Act - Nexus between interest-free funds and advances:

The appeals were against the order passed by the Commissioner of Income Tax (Appeals) concerning the addition of ?2,58,906 under section 36(1)(iii) of the Act due to the alleged lack of nexus between interest-free funds and advances. The assessee's submissions included details of the advance for land and the interest-free funds available. The Assessing Officer (AO) made the addition as the advances were not found to have business interest or commercial expediency. The appellate authority confirmed the addition. However, the assessee argued that the interest paid funds were not directly used for advances and cited legal precedents to support their case. The Tribunal observed that the funds used for advances were from previous years' balances and internal cash accruals, with no direct nexus to interest-bearing funds. Referring to legal judgments, the Tribunal concluded that the borrowing was for the business's purpose, deleting the addition made by the lower authorities.

Issue 2: Disallowance of ESI & PF contribution under section 36(1)(va) of the Act:

The issue pertained to the disallowance of the employee's contribution towards ESI & PF amounting to ?1,89,774 under section 36(1)(va) of the Act. The Tribunal noted that the assessee failed to credit the contributions within the stipulated time, as required for claiming deductions under this provision. Citing judgments from the Jurisdictional High Court and the Kerala High Court, the Tribunal upheld the disallowance, stating that the contributions must be paid within the specified due date. Consequently, the revenue's decision to add back the amount to the total income of the assessee was deemed appropriate by the Tribunal.

In conclusion, the Tribunal partly allowed the assessee's appeal, deleting the addition under section 36(1)(iii) while upholding the disallowance of ESI & PF contribution under section 36(1)(va) of the Act. The appeals were decided based on the specific legal provisions and factual circumstances presented by the parties involved.