2017 (6) TMI 1356 - AT - Income Tax

Tribunal decision: Partial appeal success, disallowance upheld, consultancy charges for verification, exclusion of interest income, excess depreciation dismissed.

M/s. Magick Woods Exports P Ltd., Versus The DCIT, Salary Circle III, Chennai

M/s. Magick Woods Exports P Ltd., Versus The DCIT, Salary Circle III, Chennai - TMI Issues Involved:1. Belated remittance of employee’s contribution towards Provident Fund.2. Belated remittance of employee’s contribution towards ESI.3. Professional consultancy charges paid without deducting TDS.4. Exclusion of gain on foreign exchange fluctuations from export turnover while computing deduction U/s.10B.5. Disallowance of excess claim of depreciation.Detailed Analysis:1. Belated Remittance of Employee’s Contribution towards Provident Fund:The Ld.AO disallowed Rs. 2,69,590/- under Section 36(1)(va) of the Act for the late remittance of employee’s contribution to the Provident Fund. The Ld.CIT(A) upheld this disallowance, emphasizing that the due date for such remittance is as per the relevant PF Act, not the due date for filing the return of income. The Tribunal confirmed that Section 36(1)(va) pertains specifically to employee’s contributions and must be remitted within the stipulated period under the PF Act. Section 43B, which allows deductions for employer’s contributions if paid before the return filing date, does not apply to employee’s contributions.2. Belated Remittance of Employee’s Contribution towards ESI:The Tribunal held that the provisions of Section 36(1)(va) also apply to employee’s contributions towards ESI by virtue of Section 2(24)(x) of the Act. Consequently, the disallowance for late remittance of Rs. 32,654/- towards ESI was upheld, consistent with the decision on the Provident Fund issue.3. Professional Consultancy Charges Paid without Deducting TDS:The Ld.AO disallowed Rs. 1,21,648/- and Rs. 1,57,404/- paid to M/s. Manohar Chowdhry & Associates and M/s. SAP BPO Services Pvt. Ltd., respectively, under Section 40(a)(ia) for short deduction of TDS. The Ld.CIT(A) upheld this disallowance, referencing the jurisdictional ITAT decision in Frontier Offshore Exploration (India) Ltd., which held that Section 40(a)(ia) applies to short deductions as well. The Tribunal remitted the matter back to the Ld.AO to verify if the recipients had included the amounts in their income and paid tax accordingly, as per the amended provisions of Section 40(a)(ia) and the Delhi High Court decision in CIT vs. Ansal Landmark Township Pvt. Ltd.4. Exclusion of Gain on Foreign Exchange Fluctuations from Export Turnover while Computing Deduction U/s.10B:The Ld.AO excluded foreign exchange gain from export turnover for computing deduction U/s.10B, treating it as a treasury income. The Ld.CIT(A) allowed the assessee’s plea based on the jurisdictional High Court decision in CIT v. Pentasoft Technologies Ltd., which held that foreign exchange gains related to export activities should be included in the export turnover. The Tribunal directed the Ld.AO to exclude the interest income from both export turnover and total turnover, in line with this precedent.5. Disallowance of Excess Claim of Depreciation:The ground regarding the disallowance of excess depreciation amounting to Rs. 13,45,141/- was not pressed by the assessee and was dismissed.Conclusion:The appeal was partly allowed for statistical purposes. The Tribunal upheld the disallowances related to the belated remittance of employee’s contributions towards Provident Fund and ESI. It remitted the issue of professional consultancy charges back to the Ld.AO for verification. The Tribunal directed the exclusion of interest income from both export turnover and total turnover while computing deduction U/s.10B. The excess depreciation claim issue was dismissed as not pressed.