2021 (4) TMI 456 - AT - Income Tax

Addition for delayed deposit of employees share of ESI PF contribution - HELD THAT - All dues were deposited well before due date of filing of Return of Income - The issue is no more res integra in light of various judicial pronouncements of the Hon ble Rajasthan High Court relied upon by the assessee. Regarding the decision of the Hon ble Rajasthan High Court in case of Rajasthan Renewal Energy Corporation limited 2018 (3) TMI 1756 - RAJASTHAN HIGH COURT relied upon by the ld CIT(A), we are of the considered belief that having read the said decision in its entirety, the decision infact supports the case of the assessee rather than the Revenue. As relying on M/S K.S. AUTOMOBILES PVT. LTD. VERSUS THE ITO, DCIT, JAIPUR. 2019 (3) TMI 1648 - ITAT JAIPUR we set-aside the order of the ld CIT(A) and the disallowance made by the AO towards employees contribution to ESI and PF is hereby deleted Disallowance being expenses relating to earlier years - HELD THAT - In the instant case, the ld CIT(A) has accepted the fact that the salary pertaining to earlier years and payable to certain staff members have been settled during the year and hence, the same has been allowed. In respect of other expenses as well, we find that there are advertisement, printing and stationery expense which pertain to earlier years and which have again been finally settled during the year. Similarly, there are legal and professional expense which have been settled during the year and liability towards service tax which has been paid during the year. We therefore find that these expenses are duly allowable in the hands of the assessee as settled during the year and in any case, there are no changes in the tax rates and thus, no prejudice is caused to the Revenue and as held by the Courts, such an exercise of disallowing otherwise allowable expenses treating as mere prior period expenses will only result in an academic discussion without any tangible results.See Rajasthan Renewable Energy Corporation Ltd. 2018 (3) TMI 1756 - RAJASTHAN HIGH COURT . Disallowance is hereby directed to be deleted Disallowance of travel, conveyance and business promotion expenses - AO has disallowed a sum holding that some of the expenses are not fully supported by proper bills/vouchers and thus not subject to verification - CIT(A) upheld the finding of the AO and at the same time, holding that the disallowance seems to be bit excessive has restricted the disallowance - HELD THAT - We find that the AO is well within his right and jurisdiction to examine the claim of the expenses and adopt an appropriate methodology of determining the nature and sample size of expenses and on examination thereof, where he find that the expense are not genuine or have not been incurred for the purposes of business, the same can be disallowed. However, before arriving at such a finding, he has to record specific finding highlighting particular expenditure which accordingly to him is not allowable and the reasons for the same which in the instant case is conspicuously absent and thus, the disallowance so made and sustained by the ld CIT(A) is clearly in the nature of an adhoc disallowance which cannot be sustained in the eyes of law., the disallowance of ₹ 250,000/- is hereby directed to be deleted and ground no. 3 of assessee s appeal is allowed.

Summary

Issues Involved:
1. Sustaining the addition under section 36(1)(va) for delayed deposits of Employee’s Contribution towards ESI & PF.
2. Sustaining the addition of expenses related to earlier years but settled during the year under consideration.
3. Sustaining the addition out of lumpsum disallowance made out of Travelling & Conveyance Expenses and Business Promotion Expenses.

Issue-wise Detailed Analysis:

1. Sustaining the addition under section 36(1)(va) for delayed deposits of Employee’s Contribution towards ESI & PF:
The assessee contended that all dues were deposited before the due date of filing the Return of Income, and cited several judicial decisions supporting their position. The Revenue, however, relied on a decision from the Rajasthan High Court which was perceived to support the department's stance. The Tribunal clarified that the cited decision actually supported the assessee's case and noted that the Supreme Court had dismissed the department's SLP in a related case. Thus, the Tribunal set aside the CIT(A)'s order and deleted the disallowance made by the AO, allowing the assessee's appeal on this ground.

2. Sustaining the addition of expenses related to earlier years but settled during the year under consideration:
The assessee argued that some expenses, though related to earlier years, were settled in the year under consideration due to business exigencies and consistent accounting practices. The CIT(A) had accepted the settlement of salary expenses during the year but disallowed other expenses. The Tribunal found that other expenses, such as advertisement, printing, and legal expenses, were also settled during the year and should be allowed. The Tribunal directed the deletion of the disallowance of ?150,279, thus allowing the assessee's appeal on this ground.

3. Sustaining the addition out of lumpsum disallowance made out of Travelling & Conveyance Expenses and Business Promotion Expenses:
The AO made a lumpsum disallowance due to the absence of proper bills/vouchers for some expenses. The CIT(A) reduced the disallowance but upheld its basis. The Tribunal noted that the AO did not provide specific findings on why certain expenses were not allowable and deemed the disallowance as adhoc. Citing similar cases, the Tribunal directed the deletion of the disallowance of ?250,000, allowing the assessee's appeal on this ground.

Conclusion:
The Tribunal allowed the assessee's appeal on all grounds, deleting the disallowances made by the AO and upheld by the CIT(A). The order was pronounced in the open court on 08/04/2021.