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2021 (8) TMI 873 - AT - Income TaxAddition of employees Provident Fund (PF) and ESI - delay in depositing employees contribution to PF and ESI - CIT-A deleted the addition - HELD THAT - We note that the Ld. CIT(A) has taken note that the payments in respect of PF ESI accounts (i.e. both the employees and employers contribution) has been made by the assessee within the due date of filing of return of income (ROI) u/s. 139(1) of the Income-tax Act (hereinafter referred to as the Act ) i.e. before 30.09.2013. This fact has been taken note by the Ld. CIT(A) from perusal of Annexure 5A and 5B of the Tax Audit Report dated 26.09.2013. And since the assessee has deposited the PF ESI deposits before the due date of filing of ROI, the assessee correctly relied upon the decision of CIT Vs. M/s. Vijayshree Ltd. 2011 (9) TMI 30 - CALCUTTA HIGH COURT and held since both the contributions as per the PF ESI Act has been made on or before the filing of return of income u/s. 139(1) of the Act, so no disallowance to be made u/s. 36(1)(va) - Decided in favour of assessee. Disallowance u/s.14A - HELD THAT - As assessee brought our notice that the assessee has not received any exempt income. This fact has been confirmed by the Ld. CIT(A). The Ld. CIT(A) after taking note of this fact that the assessee has not received any exempt income during the year under consideration has given relief by relying on the decision of this Tribunal in assessee s own case for AY 2011-12 2018 (4) TMI 440 - ITAT KOLKATA . We do not find any infirmity in the order of the Ld. CIT(A) on this issue and for that we rely on the ratio of the decision of the Hon ble Delhi High Court in the case of Cheminvest Ltd 2015 (9) TMI 238 - DELHI HIGH COURT and CIT Vs. Hero Cycles 2009 (11) TMI 33 - PUNJAB AND HARYANA HIGH COURT Disallowance of interest on borrowed fund as advanced to the subsidiary company free of cost - HELD THAT - From the facts discussed, the assessee company which is the holding company had advanced loan interest free due to business exigency to tide over the deficit (due to low tariff rate of electricity), so even if interest free advances are given to subsidiary/sister concern, interest expenditure could not have been disallowed and for such a proposition we rely on the ratio of the decision in the case of S A Builders Ltd. Vs. CIT 2006 (12) TMI 82 - SUPREME COURT which is also applicable to the facts of this case. Therefore, we are of the opinion that the disallowance of interest on loan to subsidiary u/s. 36(1)(iii) of the Act by the AO has been rightly held to be unjustified. Further we note that the issue is squarely covered in favour of the assessee by order of the Coordinate bench of this Tribunal in assessee s own case 2018 (4) TMI 440 - ITAT KOLKATA ad 2014 (2) TMI 1366 - ITAT KOLKATA and there is no change in facts and law and the Ld. DR was unable to controvert the same by producing any cogent material, therefore, we find no reason to interfere in the impugned order of the Ld. CIT(A) and the same is hereby upheld. Therefore, we uphold the action of the Ld. CIT(A) and dismiss this ground of appeal of the revenue. Subsidy received from National Jute Board - revenue or capital receipt - AO added the said amount to the total income of the assessee on the ground that it is a revenue receipt - AO has made the addition mainly on the reason that assessee failed to deduct from the cost of plant and machinery the sum and has also claimed the depreciation on this amount of machinery - HELD THAT - It is settled that revenue receipt are chargeable to tax on the other hand capital receipts are not unless specifically made taxable under the Act. If subsidies are given for various purpose like for promoting, construction of new industries, expansion of existing industries etc. then it is on capital account. On the other hand, the object of the subsidy scheme was to enable the assessee to run the business more profitably or to meet day to day business expenses, then the receipt shall be of revenue nature. So, if the object of this assistance/subsidy was to enable the assessee to set up a new unit or to expand the existing unit then the receipt shall be capital receipt not chargeable to tax. Therefore, the taxability of subsidies has to be determined by looking into the purpose for which it is given - Thus scheme for which this subsidy was given to the assessee Ld. CIT(A) has rightly decided in favour of the assessee. Ground of appeal of revenue is dismissed.
Issues Involved:
1. Disallowance of Employees' Provident Fund (PF) and ESI contributions. 2. Disallowance under Section 14A of the Income Tax Act. 3. Disallowance of interest on borrowed funds advanced to a subsidiary company. 4. Taxability of subsidy received from the National Jute Board. Detailed Analysis: 1. Disallowance of Employees' Provident Fund (PF) and ESI Contributions: The first issue concerns the disallowance of PF and ESI contributions amounting to ?1,15,09,316/- and ?22,35,069/- respectively. The Assessing Officer (AO) disallowed these contributions due to delayed deposits. However, the Commissioner of Income Tax (Appeals) [CIT(A)] noted that the payments were made before the due date of filing the return of income under Section 139(1) of the Income Tax Act. The CIT(A) relied on the jurisdictional High Court decision in CIT vs. M/s. Vijayshree Ltd. and the Supreme Court decision in CIT vs. Alom Extrusion Ltd., which allowed such deductions if payments were made before the return filing due date. The Tribunal upheld the CIT(A)'s decision, noting that the amendment by the Finance Act, 2021, which mandates timely deposit, is prospective and effective from 01.04.2021. 2. Disallowance under Section 14A of the Income Tax Act: The second issue pertains to the disallowance of ?8,67,503/- under Section 14A. The CIT(A) granted relief to the assessee, noting that no exempt income was received during the year. This fact was confirmed by the CIT(A) and supported by the Tribunal's decision in the assessee's own case for AY 2011-12. The Tribunal found no infirmity in the CIT(A)'s order and relied on the Delhi High Court's decision in Cheminvest Ltd. vs. CIT and the Punjab & Haryana High Court's decision in CIT vs. Hero Cycles, which held that no disallowance under Section 14A is warranted if no exempt income is earned. 3. Disallowance of Interest on Borrowed Funds Advanced to a Subsidiary Company: The third issue involves the disallowance of ?96,61,517/- as interest on borrowed funds advanced interest-free to a subsidiary. The AO disallowed the interest, arguing that the borrowed funds were used for interest-free advances, which was seen as a colorable device to evade tax. However, the CIT(A) deleted the disallowance, noting that the advances were made out of commercial expediency and the assessee had sufficient non-interest-bearing funds. The Tribunal upheld the CIT(A)'s decision, referencing the Supreme Court's decision in S.A. Builders Ltd. vs. CIT, which allows such advances if they are for business purposes. The Tribunal also noted that similar disallowances were deleted in the assessee's own cases for AYs 2008-09 and 2011-12. 4. Taxability of Subsidy Received from the National Jute Board: The fourth issue concerns the taxability of a subsidy amounting to ?60,16,264/- received from the National Jute Board. The AO added this amount to the total income, treating it as a revenue receipt. However, the CIT(A) deleted the addition, noting that the subsidy was for the acquisition of plant and machinery and was deducted from the cost of the plant and machinery, as evidenced by the tax audit report. The Tribunal upheld the CIT(A)'s decision, stating that the subsidy was a capital receipt not chargeable to tax. The Tribunal relied on the Supreme Court's decisions in Sawhney Steel and Press Works Ltd. vs. CIT and CIT vs. Pony Sugars & Chemicals Ltd., which held that subsidies given for setting up or expanding business capacities are capital receipts. Conclusion: The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s decisions on all four issues. The Tribunal's judgment is consistent with established legal precedents and the specific facts of the case.
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