2019 (10) TMI 128 - AT - Income Tax

Disallowance u/s.2(24)(x) r.w.s 36(1)(va) - late payment of employee s contribution to PF - HELD THAT - the instant case, it is not in dispute that the contribution to EPF was deposited by the assessee before due date of filing the return of income u/s.139(1) of the Act. Although the CBDT Circular No.22/2015 dated 17.12.2015 provides that the deduction relating to employee s contribution to welfare fund are governed by section 36(1)(va) of the Act as relied by the ld D.R. As relied upon M/S. BHARAT HOTELS LTD. 2018 (9) TMI 798 - DELHI HIGH COURT the issue is restored to the file of the Assessing Officer to examine the contributions made with reference to the dates when they were actually made and grant relief to such of claim which qualified for such relief in terms of prevailing provisions of the Act. We clearly obverse that the assessee would be entitled to deductions in terms of section 36(1)(va) of the Act. Accordingly, this ground is allowed for statistical purposes. Addition to the extent of 10% by the CIT(A) in respect of repairs and maintenance, travelling, conveyance and demonstration charges and carriage inward expenses - main reason of disallowance by the authorities below that no third party bills are available and all the vouchers are self made - HELD THAT - A.R. could not furnish any external vouchers in support of the claim. On bare perusal of the assessment order, it was clearly discernible that the payments were made by other parties on behalf of the assessee and only credit notes are issued and, therefore, the genuineness of the expenses could not be verified and most of the vouchers are self made. However, the Assessing Officer has not pointed out any specific defects in the bills and vouchers. However, the CIT(A) after taking into consideration all these aspects and also considering that the disallowance is excessive, reduced to 10% of the total expenses claimed by the assessee. Therefore, the order of the CIT(A) in restricting the disallowance to 10% is fair and reasonable and need not be interfered with Addition under the head 'Electricity charges' - HELD THAT - It is also not disputed that there is no agreement between the assessee and Protection Manufacturing Private Limited for sharing the electricity. During the assessment years under consideration, the auditor of the assessee has certified that there is no manufacturing activity undertaken by the assessee, however, the claim of electricity expenses seems to be excessive. Although the claim of the assessee that the same is business expenditure and fully verifiable duly supported by documents but neither before the authorities below nor before us, could furnish any positive material on record to substantiate the claim. In view of above, we find no infirmity in the orders of lower authorities to interfere. Hence, this ground of appeal is dismissed.

Summary

Issues Involved:
1. Disallowance of employee’s contribution to PF under section 2(24)(x) read with section 36(1)(va) of the Income-tax Act.
2. Sustenance of addition to the extent of 10% by CIT(A) in respect of repairs and maintenance, travelling, conveyance, demonstration charges, and carriage inward expenses.
3. Confirmation of addition of electricity charges for the assessment years 2013-14 and 2014-15.

Issue-wise Detailed Analysis:

1. Disallowance of employee’s contribution to PF under section 2(24)(x) read with section 36(1)(va):

The assessee contested the disallowance of ?44,097/- for the assessment year 2013-14, which was deposited beyond the period prescribed under the relevant statute but before the due date of filing the return under section 139(1). The CIT(A) upheld the assessment order. The Tribunal noted that the CBDT Circular No. 22/2015 clarified that employer’s contributions deposited on or before the due date of filing the return are allowable, but this does not apply to employee’s contributions governed by section 36(1)(va). Various High Courts have differing views on this issue. The Tribunal, following the majority view in favor of the assessee, referred to the Supreme Court's decision in CIT vs. Vegetables Product Ltd., and restored the issue to the Assessing Officer to examine the contributions and grant relief accordingly. The Tribunal observed that the assessee would be entitled to deductions in terms of section 36(1)(va).

2. Sustenance of addition to the extent of 10% by CIT(A) in respect of repairs and maintenance, travelling, conveyance, demonstration charges, and carriage inward expenses:

The Assessing Officer made disallowances of 30% for repair & maintenance and 20% for travelling, conveyance, demonstration charges, and carriage inward expenses due to payments made in cash and lack of third-party bills. The CIT(A) reduced the disallowance to 10%, considering the rate excessive. The Tribunal noted that the Assessing Officer did not point out specific defects in the bills and vouchers, and the CIT(A) considered all aspects before reducing the disallowance. Therefore, the Tribunal found the CIT(A)'s decision fair and reasonable and upheld the 10% disallowance.

3. Confirmation of addition of electricity charges for the assessment years 2013-14 and 2014-15:

The Assessing Officer noticed discrepancies in the electricity charges claimed by the assessee and required evidence of payment. The assessee could not provide sufficient evidence or a lease agreement for the factory premises where the electricity was consumed. The Assessing Officer disallowed 50% of the electricity expenses, deeming the claim excessive and unsupported. The CIT(A) confirmed this action. The Tribunal observed that the assessee failed to substantiate the claim with positive material and noted the auditor's certification of no manufacturing activity. Consequently, the Tribunal found no reason to interfere with the lower authorities' decisions and dismissed the ground of appeal.

Conclusion:

The appeal for the assessment year 2013-14 was partly allowed for statistical purposes, and the appeal for the assessment year 2014-15 was dismissed. The Tribunal ordered the Assessing Officer to re-examine the employee’s contribution to PF and upheld the disallowances related to repairs, maintenance, and electricity charges due to lack of sufficient evidence from the assessee.