2022 (8) TMI 574 - AT - Income Tax

Disallowance of guarantee fee claimed - CIT-A deleted the addition as based on fresh evidence without affording an opportunity to the Assessing Officer under Rule 46A of the Income Tax Rules - HELD THAT - Admittedly, in this case, CIT(A) has not entertained any fresh material for adjudication of the issue. The TDS on guarantee fee paid by the assessee was very much produced before the Assessing Officer and the Assessing Officer, without considering its entirety, extracted half portion in one page and half portion in another page and made the addition. Moreover, under section 251(1)(a) of the Act, the powers of the first appellate authority are coterminous with those of Assessing Officer, considering the facts and circumstances of the case, we are of the considered opinion that the ld. CIT(A) has rightly assumed the jurisdiction to conclude the issue based on the materials already available with the Assessing Officer. Thus, the ground raised by the Revenue is dismissed. Disallowance of delayed payment of EPF and ESI dues - HELD THAT - We find that the ld. CIT(A) has rightly followed the decision in the case of CIT v. Industrial Security Intelligence India Pvt. Ltd. 2015 (7) TMI 1063 - MADRAS HIGH COURT as well as decision of CIT v. Alom Extrusions Ltd. 2009 (11) TMI 27 - SUPREME COURT in directing the Assessing Officer to allow the deduction to the extent payments are made within due date of filing of return of income. Thus, the ground raised by the Revenue is dismissed.

Issues Involved:
1. Deletion of disallowance of guarantee fee claimed based on fresh evidence without affording an opportunity to the Assessing Officer under Rule 46A of the Income Tax Rules.
2. Deletion of disallowance of delayed payment of EPF and ESI dues.

Detailed Analysis:

1. Deletion of Disallowance of Guarantee Fee:

The first issue pertains to the deletion of disallowance of the guarantee fee claimed by the assessee. The Assessing Officer (AO) observed that the assessee claimed a sum of ‚¹4,71,52,666/- as guarantee fees paid to its holding company, M/s. Daechang Seat Co. Ltd., Korea, at the rate of 1.4% of the loan amount received. However, the AO noted that the assessee had claimed amounts under the head Guarantee Fees on loans already closed during the earlier previous year or on those loans not pertaining to the current year. The excess Guarantee Fees paid amounted to ‚¹2,20,38,517/- as per the assessee's own admission. Consequently, the AO disallowed this excess amount under section 37(1) of the Act and added it to the total income of the assessee.

Upon appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] deleted the disallowance after considering the evidences furnished by the assessee regarding the incurring of expenses and the details regarding the deduction of tax on the said expenses. The CIT(A) directed the assessee to produce details of the tax deducted on guarantee fee and to substantiate that the guarantee fees were not claimed twice. The assessee complied, and the CIT(A) accepted the contentions of the assessee, thereby deleting the disallowance.

The Revenue appealed to the Tribunal, arguing that the CIT(A) deleted the disallowance without giving an opportunity to the AO, violating Rule 46A of the Income Tax Rules. However, the Tribunal found that the CIT(A) had not entertained any fresh material and that the TDS on guarantee fee paid by the assessee was already produced before the AO. The Tribunal concluded that the CIT(A) rightly assumed jurisdiction to conclude the issue based on materials already available with the AO. Hence, the Tribunal dismissed the ground raised by the Revenue.

2. Deletion of Disallowance of Delayed Payment of EPF and ESI Dues:

The second issue involves the deletion of disallowance of delayed payment of Employee Provident Fund (EPF) and Employee State Insurance (ESI) dues. The AO noticed that the assessee made delayed payments of employee contributions of EPF amounting to ‚¹20,07,225/- and ESI amounting to ‚¹1,16,946/- beyond the due dates of remittance. Thus, the AO disallowed the total sum of ‚¹21,24,171/- under section 36(1)(va) of the Act and added it to the total income of the assessee.

On appeal, the CIT(A) directed the AO to allow the deduction to the extent payments were made within the due date of filing of return of income, following the decision of the Hon'ble Madras High Court in the case of CIT v. Industrial Security and Intelligence Private Limited and the decision of the Hon'ble Supreme Court in the case of CIT v. Alom Extrusions Ltd.

The Revenue appealed to the Tribunal, relying on a decision in WP No.5264 of 2018. However, the Tribunal noted that this was a Single Judge decision and was subsequently withdrawn by the Division Bench of the Hon'ble Madras High Court. Therefore, the Tribunal found that the CIT(A) rightly followed the binding precedents and directed the AO to allow the deduction to the extent payments were made within the due date of filing of return of income. Thus, the Tribunal dismissed the ground raised by the Revenue.

Conclusion:

The appeal filed by the Revenue was dismissed in its entirety. The Tribunal upheld the CIT(A)'s decisions on both issues, confirming the deletion of disallowance of the guarantee fee and the delayed payment of EPF and ESI dues, based on the evidence and legal precedents presented.

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