2022 (1) TMI 242 - AT - Income Tax

Disallowance of employees contribution to PF ESI u/s.36(1(va) r.w.s. 2(24)(x) - Scope of amendment - HELD THAT - We find that amendment brought to the statute by insertion of Explanation 1 to section 36(1(va) by the Finance Act, 2021 w.e.f. 01.04.2021 is considered to be prospective in nature as per the decision of the co-ordinate Bench of ITAT., Chennai 2021 (12) TMI 558 - ITAT CHENNAI , where it was held that insertion of Explanation 1 to said section cannot be considered as retrospective in nature and thus, belated payment of employees contribution to PF ESI after due date specified under respective Act, but before due date for filing of return of income u/s.139(1) of the Act is allowable deduction. We direct the Assessing Officer to delete additions made towards disallowance of employees contribution to PF ESI u/s.36(1(va) r.w.s. 2(24)(x) of the Act for both assessment years. Disallowance of expenses relatable to exempt income u/s.14A r.w. Rule 8D - absence of exempt income - HELD THAT - Hon'ble Jurisdictional High Court of Madras in the case of M/s. Redington India Ltd. 2017 (1) TMI 318 - MADRAS HIGH COURT had considered identical issue and held that in absence of exempt income, no disallowance can be made towards expenses relatable to said exempt income. In this case, facts borne out from records clearly show that there is no exempt income for both assessment years, and hence, the AO cannot compute disallowance of expenses relatable to said exempt income. Accordingly, we direct the AO to delete additions towards disallowance u/s.14A read with Rule 8D of Income Tax Rules, 1962, for both assessment years.

Summary

Issues:
- Appeal filed by assessee for assessment year 2014-15 being barred by limitation.
- Disallowance of employees' contributions to PF & ESI.
- Disallowance of expenses relatable to exempt income u/s.14A read with Rule 8D.

Analysis:
1. Appeal Barred by Limitation:
The appeal filed by the assessee for assessment year 2014-15 was found to be barred by limitation. The assessee filed a petition for condonation of delay citing severe financial crisis as the reason for the delay. The Tribunal, after hearing the learned DR and considering the petition, concluded that the reasons provided by the assessee constituted a reasonable cause for condonation of delay. Therefore, the delay was condoned, and the appeal was admitted for adjudication.

2. Disallowance of Employees' Contributions to PF & ESI:
The issue of disallowance of employees' contributions to PF & ESI was considered. The learned DR argued in favor of sustaining the additions made by the Assessing Officer, citing an amendment to the provisions of section 36(1)(va) by the Finance Act, 2021. However, the Tribunal referred to a decision by a co-ordinate Bench of ITAT, Chennai, which held that the amendment was prospective and not retrospective. It was determined that belated payment of employees' contributions to PF & ESI before the due date for filing the return of income u/s.139(1) of the Act is allowable as a deduction. Consequently, the Tribunal directed the Assessing Officer to delete the additions made for both assessment years.

3. Disallowance of Expenses Relatable to Exempt Income:
The issue of disallowance of expenses relatable to exempt income u/s.14A read with Rule 8D was examined. The learned DR contended that no disallowance could be made in the absence of exempt income, citing a decision by the Hon'ble Jurisdictional High Court of Madras. The Tribunal concurred with this position and noted that there was no exempt income for both assessment years. Therefore, the Assessing Officer was directed to delete the additions made towards disallowance of expenses relatable to exempt income for both assessment years.

In conclusion, the appeals filed by the assessee for both assessment years were allowed by the Tribunal, with directions to delete the additions made in relation to the disallowance of employees' contributions to PF & ESI and expenses relatable to exempt income.