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2021 (7) TMI 813 - AT - Income TaxAddition u/s 36(1)(va) read with section 2(24)(x) -Employees' contribution to PF and ESI - failure to deposit before due date - assessee has deposited Employees Contribution to PF/ESI beyond the due date specified under the relevant Act - HELD THAT - The issue on hand has already been decided against the assessee by the judgment of Hon ble Gujarat High Court in the case of CIT v/s GSRTC 2014 (1) TMI 502 - GUJARAT HIGH COURT There is no ambiguity to the fact that the assessee failed to deposit Employees Contribution to PF/ESI with in the due date specified under the relevant Act i.e. PF/Employees State Insurance. Thus the assessee is not entitled for the deduction for such amount of contribution to PF/ESI as discussed above in view of the judgment of Hon ble Gujarat High Court. In view of the above we do not find any merit in the ground of appeal raised by the assessee. Hence the ground of appeal of the assessee is hereby dismissed. Addition being the provision for bad and doubtful debts as provided under explanation 1 of clause (vii) to section 36(1) - HELD THAT - Assessee has claimed deduction for the provision of doubtful debts which was adjusted against the trade receivables as evident from the relevant schedule of the Balance Sheet of the assessee. we hold that the assessee is entitled to claim the deduction with respect to the provisions made by it against the trade receivables in the given facts and circumstances. Accordingly, we are not convinced with the finding of the authorities below and therefore the same deserves to be reversed. - Decided in favour of assessee.
Issues Involved:
1. Disallowance under Section 36(1)(va) read with Section 2(24)(x) for late deposit of Employees' Contribution to PF/ESI. 2. Disallowance of provision for doubtful debts under Section 36(1)(vii). Issue-wise Detailed Analysis: 1. Disallowance under Section 36(1)(va) read with Section 2(24)(x) for late deposit of Employees' Contribution to PF/ESI: The first issue pertains to the disallowance of ?1,73,835 under Section 36(1)(va) read with Section 2(24)(x) of the Income Tax Act, 1961. The assessee, a private limited company engaged in the business of manufacturing and trading of Ceramics Tiles Chemicals, had deposited the Employees' Contribution to PF/ESI beyond the due date specified under the relevant Act. The Assessing Officer (AO) disallowed this deduction and added the sum to the total income of the assessee. The assessee's appeal to the Learned Commissioner of Income Tax (Appeals) [CIT(A)] was unsuccessful, as the CIT(A) confirmed the AO's order. Upon further appeal, the tribunal noted that the issue had already been decided against the assessee by the Hon’ble Gujarat High Court in the case of CIT v/s GSRTC (366 ITR 170). As per the relevant provisions, any sum received by the assessee from employees as a contribution to any provident fund or superannuation fund must be credited to the employee's account in the relevant fund on or before the due date. Since the assessee failed to deposit the Employees' Contribution to PF/ESI within the specified due date, the tribunal upheld the disallowance. Consequently, the ground of appeal raised by the assessee was dismissed. 2. Disallowance of provision for doubtful debts under Section 36(1)(vii): The second issue involves the disallowance of ?55,69,760 claimed as a provision for doubtful debts under Section 36(1)(vii). The AO disallowed the provision, adding it back to the total income of the assessee, which was later confirmed by the CIT(A). The CIT(A) observed that the provision for doubtful debts was not eligible for deduction as per the Supreme Court’s judgment in the case of Vijaya Bank vs. CIT (323 ITR 166), which applies to both banking and non-banking companies. The assessee contended that the provision for doubtful debts was adjusted against trade receivables shown in the balance sheet, thus making it eligible for deduction. The tribunal examined the relevant provisions and the Supreme Court’s judgment in Vijaya Bank, which clarified that a mere provision for doubtful debts is not deductible unless it is simultaneously adjusted against the sundry debtors in the balance sheet. In this case, the tribunal found that the assessee had indeed debited the provision for doubtful debts in the profit and loss account and adjusted the same against trade receivables in the balance sheet. This adjustment was evident from the financial statements provided. Furthermore, the tribunal referred to its own decision in the assessee’s case for the assessment year 2013-14, where a similar issue was decided in favor of the assessee. The tribunal also considered the judgment of the Hon’ble Jurisdictional High Court in the case of CIT vs. Vodafone Essar Gujarat Ltd., which supported the assessee’s stance. The High Court held that simultaneous debiting of the profit and loss account and reduction of loans and advances or debtors in the balance sheet constituted an actual write-off, thus making it eligible for deduction. Based on these precedents and the facts of the case, the tribunal concluded that the assessee was entitled to claim the deduction for the provision for doubtful debts. The tribunal set aside the findings of the CIT(A) and directed the AO to delete the addition. Therefore, the ground of appeal regarding the provision for doubtful debts was allowed. Conclusion: The appeal was partly allowed, with the tribunal upholding the disallowance under Section 36(1)(va) but allowing the deduction for the provision for doubtful debts under Section 36(1)(vii). The order was pronounced on 09/07/2021 at Ahmedabad.
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