EPF contributions deposited within grace period cannot be disallowed under section 36(1)(va) following Supreme Court precedent

ITAT Raipur allowed the assessee's appeal partly regarding EPF contribution deposits. The tribunal held that employee's share of EPF contributions deposited within the grace period under EPF Act, 1952 cannot be disallowed u/s 36(1)(va) r.w.s 2(24)(x), following HC precedent and SC ruling in Checkmate Services. However, contributions deposited beyond the due date were rightly disallowed by AO. Additionally, ITAT vacated AO's disallowance of expenses u/s 37(1) as AO failed to establish the expenditure was capital/personal in nature or prohibited by law, lacking material evidence to prove bogus claims or non-business purpose.

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Issues Involved:
1. Validity of the order passed by CIT(A), National Faceless Appeal Center.
2. Disallowance of Rs. 5,44,519/- under Section 36(1)(va) r.w.s 2(24)(x) of the Income Tax Act, 1961.
3. Ad-hoc disallowance of Rs. 2,50,000/- on account of business promotion expenses.

Summary:

Issue 1: Validity of the Order Passed by CIT(A), National Faceless Appeal Center
The appellant contended that the order passed by the CIT(A), National Faceless Appeal Center, was illegal and void ab initio. However, this ground was general in nature and was dismissed as not pressed.

Issue 2: Disallowance of Rs. 5,44,519/- under Section 36(1)(va) r.w.s 2(24)(x) of the Income Tax Act, 1961
The assessee firm, engaged in mining contracting/transporting, filed its return for A.Y. 2014-15. During assessment, it was noted that the assessee delayed deposits of the employee's share of EPF contributions totaling Rs. 5,44,519/-. The A.O. added this amount to the income under Section 36(1)(va) r.w.s 2(24)(x). The CIT(A) upheld this addition, citing the Supreme Court's judgment in Checkmate Services Pvt. Ltd. The Tribunal found that Rs. 1,88,346/- was deposited within the grace period allowed under the EPF Act, 1952, and thus could not be disallowed. The remaining Rs. 3,56,173/- deposited beyond the due date was correctly disallowed by the A.O. Therefore, the Tribunal partly allowed this ground of appeal.

Issue 3: Ad-hoc Disallowance of Rs. 2,50,000/- on Account of Business Promotion Expenses
The A.O. made an ad-hoc disallowance of Rs. 2,50,000/- for business promotion expenses, claiming the expenses were supported only by internal vouchers and were unverifiable. The Tribunal found that the A.O. did not point out any specific instance of unverifiable or non-business expenditure. It was held that disallowance under Section 37(1) must be based on specific findings, not on an arbitrary ad-hoc basis. Consequently, the disallowance of Rs. 2,50,000/- was vacated.

Conclusion:
The appeal was partly allowed for statistical purposes. The disallowance of Rs. 1,88,346/- under Section 36(1)(va) was vacated, while the disallowance of Rs. 3,56,173/- was upheld. The ad-hoc disallowance of Rs. 2,50,000/- for business promotion expenses was vacated. Grounds of appeal No. 1 and 4 were dismissed as not pressed.

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