2021 (1) TMI 640 - AT - Income Tax

Disallowance of deduction u/s 43B - employees contribution to the Employees Provident Fund (EPF)/ Employees State Insurance Corporation (ESIC) deposited beyond the due date - HELD THAT - With respect to the employees contribution received by the assessee if the assessee has not credited the said sum to the employees account in the relevant fund or funds on or before the due date mentioned in explanation to section 36(1) (va), the assessee shall not be entitled to deduction of such amount in computing the income referred to in section 28 of the Act. Therefore, there is no merit in this ground of appeal assessee. In the case of Gujarat State Road Transport Corporation Ltd. 2014 (1) TMI 502 - GUJARAT HIGH COURT and M/s.Checkmate Facility Electronics Solutions P.Ltd. Vs. DCIT 2018 (10) TMI 994 - GUJARAT HIGH COURT wherein it is held that the employees contribution to the Employees Provident Fund (EPF)/ Employees State Insurance Corporation (ESIC) deposited beyond the due date prescribed under section 36(1)(va) of the Income-tax Act, 1961 would not be eligible for deduction under section 43B of the Act, even if deposited before the due date of filing the tax return - Decided against assessee. Disallowance on account of expenditure on consultancy and legal fees - As per AO since the transaction entered under Preparation of Amalgamation of MRPL with MIP and Lawyers fees for Merger which itself explains that the said expenses were incurred wholly and exclusively for the purpose of amalgamation or demerger of an undertaking, and therefore section 35DD is applicable - HELD THAT - The concurrent findings of Revenue authorities that purpose for which the expenditure was incurred is specific and the claim of expenditure against Tax Consultancy under the column Transaction Text of ledger of Transactions, the term Preparation of Amalgamation of MRPL with MIP and Lawyer fees for Merger respectively mentioned, were not successfully rebutted by the assessee before us also. This treatment and classification of the said expenditure in the accounting transaction by the assessee clearly shows that the expenditure was incurred wholly and exclusively for the purpose of amalgamation or demerger which would attract provisions of section 35DD. Before us also, the assessee cannot better its case, and rather simply reiterated the submissions as were made before the lower authorities. Therefore, for the reasons discussed in the orders of the Revenue authorities, and the very premise on which the Assessing Officer denied the claim of the Assessee is found to be factually tenable and hence, invocation of provision under section 35DD of the Act cannot be said to be incorrect and unjustified. - Decided against assessee.

Summary

Issues:
1. Disallowance of employee's PF contribution for not being deposited within the due date.
2. Disallowance of consultancy and legal fees under section 35DD.

Issue 1: Disallowance of employee's PF contribution:
The appellant contested the disallowance of ?11,14,726 for not depositing the employee's PF contribution within the due date. The AO disallowed the claim, citing the Gujarat State Road Transport Corporation case, emphasizing that the sum must be credited to the relevant fund by the due date. The CIT(A) upheld the AO's decision. The Tribunal, citing precedents, held that even if deposited before the return filing date, contributions beyond the due date are not deductible under section 43B. Following the High Court's rulings, the Tribunal rejected the appeal, stating the appellant failed to credit the sum to the fund by the due date.

Issue 2: Disallowance of consultancy and legal fees under section 35DD:
The appellant challenged the disallowance of ?4,26,968 for consultancy and legal fees. The AO treated these expenses under section 35D due to their nature related to amalgamation or merger. The AO allowed only 1/5th of the expenditure under section 35DD and disallowed the rest. The CIT(A) affirmed this decision. The Tribunal noted the specific nature of the expenses and the appellant's failure to provide evidence against the classification. The Tribunal upheld the disallowance, stating the expenses were incurred exclusively for amalgamation or demerger purposes. The appellant's argument that the expenses were routine business activities was rejected, and the Tribunal upheld the disallowance under section 35DD.

In conclusion, the Tribunal dismissed the appeal, upholding both disallowances. The appellant's contentions were found to be unsubstantiated, and the Tribunal upheld the decisions of the lower authorities based on factual and legal grounds. The judgment was pronounced on 4th December 2020 by the Tribunal in an open court session.