2024 (3) TMI 820 - AT - Income Tax

Disallowance of personal expenses - assessee has made payment/remittance to USA towards medical treatment of one of its Directors - HELD THAT - We find due to non-submission of the Board Resolution approving the treatment of the Chairman of the company in USA and in absence of production of any evidence that the Chairman has admitted such expenditure as perquisites in his hands to tax, the AO disallowed the expenditure incurred by the assessee towards the treatment of the Chairman of the company in USA. We find in absence of any further details filed before the learned CIT (A) NFAC, the learned CIT (A) NFAC upheld the action of the AO. Assessee referred to the certified copy of the Bozard Resolution and copy of Form 16 filed in the paper book and requested for admission of the same as additional evidence. He submitted that given an opportunity, the assessee is in a position to produce the copy of the resolution of the Board of Directors approving the treatment of the Chairman of the company in USA and also file the copy of the ITR of the Chairman wherein such amount has been admitted to tax as perquisites. Thus we deem it proper to restore the issue to the file of the AO with a direction to grant more opportunity to the assessee to file the requisite details to his satisfaction and decide the issue as per fact and law - Grounds No.1 to 3 raised by the assessee are accordingly allowed for statistical purposes. Belated deposit of employee s contribution to PF - HELD THAT - Issue which has now been settled by the decision of the Hon'ble Supreme Court in the case of Checkmate Services (P) Ltd 2022 (10) TMI 617 - SUPREME COURT wherein it has been held that the employee s contribution to PF ESI, if not remitted before the due dates mentioned in the respective Act, cannot be allowed as a deduction. Assessee also fairly conceded that the above issue stands decided against the assessee by the decision of the Hon'ble Supreme Court in the case of Checkmate Services (P) Ltd vs. CIT (Supra). Accordingly, this ground raised by the assessee is dismissed. Addition towards interest paid on customs duty - Allowable revenue expenses or not? - as per AO assessee had defaulted in payment of customs duty which is an offence and only on the direction of the Hon'ble Supreme Court, the assessee has paid customs duty along with interest and if assessee paid the customs duty in time, the interest expenditure would not have arrived - HELD THAT - We find the Hon'ble Supreme Court in the case of Mahalakshmi Sugar Mills Co. vs. CIT ( 1980 (4) TMI 1 - SUPREME COURT ) has held that the interest paid u/s 3(3) of the U.P Sugarcane Cess Act, 1965 cannot be described as a penalty paid for an infringement of the law. The Coordinate Bench of the Tribunal ENKEI WHEELS INDIA LTD 2023 (2) TMI 687 - ITAT PUNE following the decision of the Hon'ble Supreme Court in the case of Mahalakshmi Sugar Mills Co. vs. CIT (Supra) has held that the interest paid for delayed payment of such taxes is a deductible item of expenditure. In view of the above discussion, we do not find in any infirmity in the order of the learned CIT (A) NFAC holding that the interest paid on customs duty is allowable as revenue expenditure and is not in contravention to Explanation (1) of section 37(1) of the I.T. Act. Accordingly, the ground raised by the Revenue is dismissed.

Summary

Issues Involved:

1. Disallowance of personal expenses.
2. Disallowance of belated deposit of employee's contribution to PF.
3. Disallowance of interest paid on customs duty.

Summary:

1. Disallowance of Personal Expenses:

The first issue raised by the assessee relates to the confirmation of an addition of Rs. 14,63,993/- made by the Assessing Officer on account of disallowance of personal expenses. The Assessing Officer noted that the assessee made a payment of Rs. 14,63,993/- towards medical treatment of one of its Directors in the USA and disallowed the same under Section 37(1) of the Income Tax Act due to the absence of a Board Resolution approving the treatment. The CIT (A) NFAC upheld this disallowance. The Tribunal, considering the totality of the facts and in the interest of justice, restored the issue to the file of the Assessing Officer with a direction to grant more opportunity to the assessee to file the requisite details and decide the issue as per fact and law. The grounds raised by the assessee on this issue were allowed for statistical purposes.

2. Disallowance of Belated Deposit of Employee's Contribution to PF:

The second issue raised by the assessee is against the confirmation of disallowance of Rs. 72,94,624/- on account of belated payment of employee's contribution to PF. The Assessing Officer treated the same as income under Section 2(24)(x) read with Section 36(1)(va) of the Act. The CIT (A) NFAC upheld this action, relying on various decisions. The Tribunal found no infirmity in the order of the CIT (A) NFAC, citing the decision of the Hon'ble Supreme Court in Checkmate Services (P) Ltd vs. CIT, which held that employee's contribution to PF & ESI, if not remitted before the due dates mentioned in the respective Act, cannot be allowed as a deduction. This ground raised by the assessee was dismissed.

3. Disallowance of Interest Paid on Customs Duty:

The only issue challenged by the Revenue relates to the deletion of an addition of Rs. 1,83,00,000/- made by the Assessing Officer towards interest paid on customs duty. The Assessing Officer disallowed the interest on the grounds that it was penal in nature and not related to business. The CIT (A) NFAC, following the decision of the Hon'ble Supreme Court in Mahalakshmi Sugar Mills Co. vs. CIT, deleted the addition, holding that the interest paid on customs duty is allowable as revenue expenditure and is not in contravention to Explanation 1 of Section 37(1) of the Act. The Tribunal upheld the order of the CIT (A) NFAC, finding no infirmity in the decision. The ground raised by the Revenue was dismissed.

Conclusion:

In the result, the appeal filed by the assessee was partly allowed for statistical purposes, and the appeal filed by the Revenue was dismissed.

Order pronounced in the Open Court on 28th February, 2024.