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2021 (9) TMI 539 - AT - Income TaxDeemed divided u/s 2(22)(e) - advances as made by a company to a sister concern and adjusted the dues for job work done by the sister concern - HELD THAT - Assessee has paid certain expenses on behalf of M/s. Indo Shell Mould Ltd. and the same has been adjusted against receivables from them. If at all, transaction between assessee and M/s. Indo Shell Mould Ltd. is in the nature of loans or advances, then same needs to be considered in the hands of M/s. Indo Shell Mould Ltd. as deemed dividend u/s.2(22)(e) of the Act. In this case, the Assessing Officer has invoked provisions of section 2(22)(e) of the Act, in the hands of company, but not in the hands of shareholder. Therefore, on this count, additions made by the Assessing Officer cannot be sustained. assessee is having exclusive contract manufacturing agreement with M/s. Indo Shell Mould Ltd. As per agreement between the parties dated 25.07.2011 M/s. Indo Shell Mould Ltd. has paid a sum of ₹ 20 crores as interest free advance for utilizing entire capacity to fulfill its needs. Since there is a commercial understanding between the assessee and M/s. Indo Shell Mould Ltd., the assessee has paid certain expenses of M/s. Indo Shell Mould Ltd. on their behalf and debited same to the account of M/s. Indo Shell Mould Ltd. Further, said amount has been adjusted against receivables from them. From the above, it is very clear that transaction between the assessee and M/s. Indo Shell Mould Ltd. is a clear commercial transaction in the normal course of business of the assessee. Therefore, in our view, same is outside scope of provisions of section 2(22)(e) - Decided in favour of assessee. Additions towards belated payment of employees contribution of PF ESI u/s.36(1)(va) r.w.s 43B(b) - HELD THAT - Hon'ble Supreme Court in the case of CIT vs. Rajasthan State Beverages Corporation Ltd. 2017 (7) TMI 1087 - SC ORDER has considered an identical issue while dismissing SLP filed by the Revenue and held that amount claimed on payment of PF ESI having been deposited on or before due date of filing of returns, same could not be disallowed u/s.43B or u/s.36(1)(va) - Insofar as circular No.22/2015 dated 17.12.2015 issued by the CBDT, we find that it has clarified allowabiity of employer s contribution to funds for welfare of the employees in terms of section 43B(b) of the Act and therefore, not relevant for considering employees contribution to the funds. AO has erred in disallowing belated payment of employees contribution to PF ESI u/s.36(1)(va) - Decided against revenue.
Issues Involved:
1. Deletion of additions towards loans and advances under Section 2(22)(e) of the Income Tax Act, 1961. 2. Additions towards belated payment of employees' contribution to PF & ESI under Section 36(1)(va) read with Section 43B(b) of the Income Tax Act, 1961. Issue-wise Detailed Analysis: 1. Deletion of Additions towards Loans and Advances under Section 2(22)(e): The primary issue concerns the deletion of additions made towards loans and advances under Section 2(22)(e) of the Income Tax Act, 1961. The assessee company had paid various expenses on behalf of a related concern, M/s. Indo Shell Mould Ltd., and these payments were treated by the Assessing Officer as loans and advances, thus invoking the provisions of Section 2(22)(e) of the Act. The learned CIT(A) deleted these additions, which led to the Revenue's appeal. The Revenue argued that the CIT(A) erred in law by not considering the liabilities paid by the assessee company on behalf of the sister concern as loans or advances, which should attract the provisions of Section 2(22)(e). The Revenue cited Supreme Court judgments in Kantilal Manilal Vs. CIT (1961) and Tarulata Shyam vs. CIT (1977) to support its position. The assessee contended that the transactions were normal commercial transactions between two related companies and were adjusted against receivables from M/s. Indo Shell Mould Ltd. The assessee cited an agreement dated 25.07.2011 and argued that the payments were made as part of a commercial understanding, thus falling outside the scope of Section 2(22)(e). The Tribunal upheld the CIT(A)'s decision, stating that the provisions of Section 2(22)(e) apply to loans or advances made to shareholders, not to commercial transactions between companies. The Tribunal noted that the transactions were commercial in nature and adjusted against receivables, thus not attracting the provisions of Section 2(22)(e). The Tribunal also referenced the decision of the Delhi High Court in CIT vs. Creative Dyeing & Printing Pvt. Ltd., which supported the view that commercial transactions are outside the scope of Section 2(22)(e). 2. Additions towards Belated Payment of Employees' Contribution to PF & ESI: The second issue pertains to the additions made for the belated payment of employees' contribution to PF & ESI under Section 36(1)(va) read with Section 43B(b) of the Income Tax Act, 1961. The CIT(A) had deleted these additions, relying on the decision of the Supreme Court in Prl. CIT, Jaipur vs. Rajasthan State Beverages Corporation Ltd., which allowed such deductions if payments were made before the due date of filing the return of income. The Revenue argued that the CIT(A) failed to consider the Board's Circular No. 22/2015 dated 17.12.2015, which was issued after the jurisdictional High Court's decision and should be taken into account. The Tribunal, however, upheld the CIT(A)'s decision, noting that the issue is well-settled by various High Courts, including the Madras High Court in CIT vs. M/s. Industrial Security & Intelligence India Pvt. Ltd. The Tribunal reiterated that belated payments of employees' contributions to PF & ESI, if made before the due date of filing the return, are allowable as deductions. The Tribunal also clarified that the Board's Circular No. 22/2015 pertains to employer's contributions and is not relevant for employees' contributions. Conclusion: The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on both issues. The Tribunal concluded that the transactions between the assessee and M/s. Indo Shell Mould Ltd. were commercial in nature and outside the scope of Section 2(22)(e). Additionally, it affirmed that belated payments of employees' contributions to PF & ESI, made before the due date of filing the return, are allowable deductions.
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