2024 (7) TMI 945 - AT - Income Tax

Deduction of written off of Unclaimed VAT - HELD THAT - Section 43B can be applied only in the cases, where assessee collects VAT from customers, and then in that case as per section 43B, amount collected has to be paid before filing of return as per the due date prescribed u/s. 139(1). Whereas in this case the amount written off by the assessee was part of purchases made by assessee, which is otherwise available for set-off against VAT liability of the assessee to be discharged by him (As collected from customers on sale). We find the treatment given by assessee to be in order, hence orders of authorities below set aside and AO is directed to allow the same. In the result, Ground No. 1 raised by the assessee is allowed. Disallowance on account of excess contribution to provident fund - HELD THAT - As per EFP and MP Act 1952, any person working for an establishment whether his on his role or otherwise, establishment will be treated as a deemed employer and contribution of PF (both employer and employee share) will be paid by the establishment. In view of this, we observed that as contractual labours usually works on a very meagre amount of salary as compared to the labour on permanent role. Secondly, the duration of labour contribution to the establishment is also very uncertain e.g. they may work for some days, some weeks or even for a part of month. In that situation, they will not allow the deemed employer to deduct their share of PF, but compliance of EPF and MP Act 1952 is always there on the head of the establishment. On this portion of employees contribution which is actually borne by the establishment ceiling of 27% as prescribed in Rule 87 of the Income Tax Rules 1962 cannot be applied here. We find this share of contractual employee PF contribution borne by deemed employer i.e. assessee cannot be disallowed as the same has been incurred wholly and exclusively for the purposes of business and this is true complied with EPF and MP Act 1952, we find this payment is not in the nature of optional expense or gratuitous payment. Rule 87 of the Income Tax Rules 1962 is there to serve a different purpose by putting a ceiling of 27%, but the same is not applicable for the situation under discussion. Ground no. 2 raised by the assessee is allowed and AO is ordered to allow the same in the case of assessee for the purposes computation of statutory total income. Appeal of the assessee is allowed.

Summary

Issues:
1. Deduction of unclaimed VAT refund w/off under Section 43B of the Income Tax Act, 1961.
2. Disallowance of excess contribution to Provident Fund.

Analysis:

Issue 1: Deduction of unclaimed VAT refund w/off under Section 43B of the Income Tax Act, 1961:
The appeal was against the order of the National Faceless Appeal Centre concerning the deduction of unclaimed VAT refund w/off. The assessee claimed Rs. 13,72,369 as unclaimed VAT refund w/off in its Profit & Loss Account. The VAT paid on purchases was considered a part of the purchase cost, and the assessee was eligible for a refund on a portion of the VAT paid. The treatment of the VAT refund amount as an asset in the Balance Sheet was considered revenue neutral. The tribunal found that section 43B did not apply in this case as the sales of the assessee were exempt from VAT, and there was no reconciliation required. The amount written off by the assessee was part of purchases made and was available for set-off against VAT liability. Therefore, the tribunal allowed Ground No. 1 raised by the assessee.

Issue 2: Disallowance of excess contribution to Provident Fund:
The second issue pertained to the disallowance of Rs. 5,59,192 on account of excess contribution to the Provident Fund. The assessee's business employed both permanent and contractual labor, with the latter contributing to the PF. The tribunal observed that the contractual labor's contribution to the PF was borne by the establishment and could not be disallowed as it was incurred for the business's purposes. The tribunal noted that the ceiling of 27% under Rule 87 of the Income Tax Rules 1962 did not apply in this situation. Therefore, Ground No. 2 raised by the assessee was allowed, and the AO was directed to allow the same for the computation of the statutory total income.

In conclusion, the tribunal allowed the appeal of the assessee, setting aside the orders of the authorities below and directing the AO to make the necessary adjustments as per the findings on both issues.