2016 (10) TMI 1059 - AT - Income Tax

Tribunal decision on Income Tax Act disallowances: ESIC & PF contributions upheld, partial success for Revenue appeal

Deputy Commissioner of Income Tax, Corporate Circle 1 (1), Chennai Versus Diamond Engineering (Chennai) P. Ltd.

The Tribunal upheld the deletion of disallowances under section 36(1)(va) of the Income Tax Act, concerning delay in payment of employee contributions to ... Addition made u/s 36(1)(va) - delay in the payment of employee’s contribution to ESIC and PF - Held that:- As the assessee had remitted the employees contribution beyond the due date for payment, but within the due date for filing the return of income. Hence, following the decision of CIT v. M/s. Industrial Security & Intelligence India Pvt. Ltd. [2015 (7) TMI 1063 - MADRAS HIGH COURT] we delete the addition made. - Decided against revenue Addition made under section 14A - Held that:- In view of the decision of the Hon’ble Mumbai High Court in the case of Godrej & Boyces Mfg. Co. Ltd. (2010 (8) TMI 77 - BOMBAY HIGH COURT ), wherein, it was held that the application of section 14A of the Act is constitutionally valid and Rule 8D is applicable from the assessment year 2008-09 and onwards. In view of the provisions of clause (iii) to Rule 8D(2), any investments made would definitely involve certain administrative and establishment cost since the decision to make investments, track investments, and follow-up activity would entails definite costs. Under the above facts and circumstances, we set aside the order of the ld. CIT(A) on this issue and sustain the disallowance made by the Assessing Officer under section 14A of the Act. Thus, the ground raised by the Revenue is allowed. Issues:1. Disallowance made under section 36(1)(va) of the Income Tax Act, 1961 regarding delay in payment of employee's contribution to ESIC and PF.2. Disallowance made under section 14A of the Income Tax Act.Issue 1: Disallowance under section 36(1)(va) of the Act:The appeal by the Revenue challenged the deletion of disallowances made under section 36(1)(va) of the Act concerning the delay in paying employee's contributions to ESIC and PF. The Assessing Officer disallowed the amount due to late remittance by the employer. The assessee argued that the remittances were made before the due date for filing the return and should be considered allowable deductions. The ld. CIT(A) decided in favor of the assessee, citing various decisions. The Revenue contended that section 43B of the Act applies only to employer's contributions to employee welfare funds. The assessee relied on a decision by the Hon'ble Jurisdictional High Court, supporting their case. The Tribunal, following the High Court's decision, directed the Assessing Officer to delete the disallowances under section 43B for both assessment years, thus allowing the assessee's appeal.Issue 2: Disallowance under section 14A of the Act:Regarding the disallowance made under section 14A of the Act, the Assessing Officer computed the disallowance based on the investments made by the assessee in mutual funds. The ld. CIT(A) directed the Assessing Officer to delete the addition under section 14A of the Act, following a Tribunal decision. However, the Revenue argued that the application of section 14A is constitutionally valid, and Rule 8D is applicable from the assessment year 2008-09 onwards. The Revenue's ground on this issue was allowed, sustaining the disallowance made by the Assessing Officer under section 14A of the Act. Consequently, the appeal by the Revenue was partly allowed.In conclusion, the Tribunal upheld the deletion of disallowances under section 36(1)(va) of the Act but sustained the disallowance under section 14A of the Act, partly allowing the Revenue's appeal.