2022 (1) TMI 681 - AT - Income Tax

Suppressed production of pan masala (containing tobacco) - HELD THAT - Lower authorities had rightly worked out the suppressed production of the assessee company at 3, 44, 85, 310 pouches by adopting the deemed production on the basis of which excise duty was charged on it. In fact as observed by us hereinabove in case the assessee had any reason with him as to why the suppressed production was not to be determined on the aforesaid basis as was specifically brought to his notice by the A.O then it was open for him to have come forth with an explanation as regards the same which we are afraid he had not done. On the basis of the aforesaid facts we are of a strong conviction that the CIT(A) had rightly upheld the suppressed production as had been determined by the A.O. We uphold the order of the CIT(A) who in our considered view had rightly had confirmed the addition of 3, 44, 85, 310/- i.e 3, 44, 85, 310 pouches @ Re.1/- per pouch as made by the A.O towards suppressed production of pan masala (containing tobacco) - Ground of appeal No. 1 raised by the assessee is dismissed. Disallowance u/s 2(24)(x) r.w sec. 36(1)(va) - disallowance of the delayed deposit of the employee s contributions towards provident fund - amount was deposited before the due date of filing of its return of income as provided in Sec. 139(1) - HELD THAT - We are of the considered view that the issue as to whether or not the employees contribution to welfare funds would fall within the scope and domain of Sec. 43B of the Act is covered by the judgment of the Hon ble High Court of Bombay in the case of CIT Vs. Hindustan Organic Chemicals Ltd 2014 (7) TMI 477 - BOMBAY HIGH COURT We are of the considered view that no distinction is to be drawn between the employers as well as employees contribution to PF and ESI as both are covered u/s 43B - We thus in terms of our aforesaid observations vacate the disallowance made by the A.O qua the delayed deposit of the employees contributions towards Provident Fund by the assessee company. The additional ground of appeal raised by the assessee is allowed in terms of our aforesaid observations.

Summary

Issues Involved:
1. Addition on account of alleged suppressed production.
2. Addition of employee’s contribution to Provident Fund under Section 2(24)(x) read with Section 36(1)(va) of the Income-tax Act, 1961.

Detailed Analysis:

1. Addition on Account of Alleged Suppressed Production:

The assessee, engaged in manufacturing and trading of pan masala containing tobacco, filed a belated return declaring a loss. The Assessing Officer (A.O) scrutinized the return and requested detailed records of purchases, consumption, and production. The assessee provided annual details but failed to submit day-to-day records. The A.O observed disproportionate purchases of packing materials and raw materials, particularly at the end of the financial year, and substantial excise duty payments despite low reported production. Consequently, the A.O rejected the books of accounts under Section 145(3) and estimated suppressed production based on the installed capacity of the machines, resulting in an addition of ?3,44,85,310.

The CIT(A) upheld this addition, noting unaccounted purchases and sales involving the assessee’s sister concern, M/s Sanket Industries Ltd., which had unaccounted sales in the relevant and preceding years. The CIT(A) also directed the A.O to investigate unexplained investments in raw materials for unaccounted production.

Upon appeal, the Tribunal found that the assessee failed to provide necessary records and explanations, justifying the rejection of books and the estimation of suppressed production. The Tribunal upheld the addition of ?3,44,85,310, affirming the lower authorities’ reliance on the machine capacity and excise duty payments as indicators of actual production.

2. Addition of Employee’s Contribution to Provident Fund:

The A.O disallowed ?9,18,996 for delayed deposit of employee’s Provident Fund contributions, invoking Section 2(24)(x) read with Section 36(1)(va). The CIT(A) confirmed this disallowance, rejecting the assessee’s argument that the payments were made before the due date for filing the return under Section 139(1).

The Tribunal referred to the Bombay High Court judgment in CIT vs. Hindustan Organic Chemicals Ltd., which held that both employer and employee contributions to welfare funds are covered under Section 43B, allowing deductions if payments are made before the due date for filing the return. The Tribunal also cited similar judgments from other High Courts, concluding that the disallowance was unwarranted. Consequently, the Tribunal vacated the addition of ?9,18,996, allowing the assessee’s additional ground of appeal.

Conclusion:

The Tribunal partly allowed the appeal, upholding the addition for suppressed production but vacating the disallowance related to the Provident Fund contributions.