Appellate Tribunal Overturns Disallowances under Income Tax Act Sections 14A and 36(1)(va)

The appellate tribunal allowed the assessee's appeal, overturning the disallowances made under Section 14A and Section 36(1)(va) of the Income Tax Act. The disallowance under Section 14A was deleted as no exempt income was earned in the relevant assessment year, following the precedent in CIT vs. Corrtech Energy P. Ltd. Regarding the disallowance under Section 36(1)(va) for late payment of employees' PF & ESI contributions, it was ruled that the relevant due date is the actual payment date, leading to the deletion of the disallowance. The judgment was in favor of the assessee and pronounced on September 22, 2017.

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Issues:
1. Disallowance under Section 14A r.w. Rule 8D of the Income Tax Rules.
2. Disallowance under Section 36(1)(va) r.w.s. 2(24) of the Act on account of late payment of employees' contribution to PF & ESI.

Issue 1: Disallowance under Section 14A r.w. Rule 8D of the Income Tax Rules:
The appeal pertains to the assessment year 2010-11, challenging the disallowance of a sum under Section 14A r.w. Rule 8D. The lower authorities disallowed/added a specific amount, citing the investment's expenditure in earning exempt dividend income. However, as per the case file, no exempt income was derived in the relevant assessment year. Citing the decision in CIT vs. Corrtech Energy P. Ltd, it was established that Section 14A along with Rule 8D does not apply in the absence of exempt income. Therefore, the impugned disallowance was deleted based on this judicial precedent.

Issue 2: Disallowance under Section 36(1)(va) r.w.s. 2(24) of the Act on account of late payment of employees' contribution to PF & ESI:
The second substantive ground challenges the correctness of disallowance under Section 36(1)(va) r.w.s. 2(24) concerning late payment of employees' PF & ESI contributions. Referring to the decision in CIT vs. Gujarat State Road Transport Corporation, it was acknowledged that such disallowance is upheld in principle. However, the assessee argued that the relevant due date should be determined based on the actual payment date rather than the month of salary. Evidence was presented showing that the contributions were paid before the due dates. Relying on the decision in Kanoi Paper & Industries Ltd. vs. ACIT, it was established that the relevant date is that of the actual payment. Consequently, the Assessing Officer was directed to delete the disallowance related to late payment of employees' contributions.

In conclusion, the appellate tribunal allowed the assessee's appeal, overturning the disallowances made under Section 14A and Section 36(1)(va) of the Income Tax Act for the respective issues discussed. The judgment was pronounced on September 22, 2017, in favor of the assessee.

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