2017 (4) TMI 443 - AT - Income Tax

Tribunal ruling favors taxpayer on Provident Fund & Director's remuneration. Unabsorbed depreciation carryforward allowed.

Income tax Officer, Mumbai Versus M/s. Sunvin Industries Pvt. Ltd.

The Tribunal partly allowed the appeal filed by the Assessing Officer. The direction regarding Provident Fund contribution was decided against the AO, as ... Belated employees contribution to PF - addition as income of the assessee u/s. 2(24)(x) - Held that:- We find that the FAA has directed the AO to verify the records and to delete the addition only after verification. In our opinion, the direction of the FAA is as per law and no appeal should have been filed with regard to the said issue. Accordingly, we decide First Ground of appeal against the AO. Addition u/s 40A(2)(b) - Restricting the remuneration to the Directors -Held that:- We have seen that while making the disallowance, the onus is on the AO and the AO has not brought any material on record as to how the remuneration paid to two Directors are excessive, no comparable on the basis of region cum industry was referred by the AO or by the ld. CIT(A) while restricting the disallowance. Considering the fact that the order of ld. CIT(A) is of non-speaking order, we restore this ground of appeal to the file of ld. CIT(A) to decide the issue afresh Carry-forward of unabsorbed depreciation - Held that:- Any unabsorbed depreciation available to an assessee on 1st day of April 2002 (A.Y. 2002-03) will be dealt with in accordance with the provisions of section 32(2) as amended by Finance Act, 2001, thus once the Circular No.14 of 2001 clarified that the restriction of 8 years for carry forward and set off of unabsorbed depreciation had been dispensed with, the unabsorbed depreciation from A.Y.1997-98 upto the A.Y.2001-02 got carried forward to the assessment year 2002-03 and became part thereof, it came to be governed by the provisions of section 32(2) as amended by Finance Act, 2001 and were available for carry forward and set off against the profits and gains of subsequent years, without any limit whatsoever See case of General Motors India Pvt. Ltd [2012 (8) TMI 714 - GUJARAT HIGH COURT] - Decided aganst Revenue. Issues Involved:1. Direction regarding PF contribution.2. Restriction of remuneration to the Directors.3. Allowing the carryforward of unabsorbed depreciation for AY 2000-01 and 2001-02.Issue-wise Detailed Analysis:1. Direction regarding PF contribution:The first ground of appeal concerns the direction given by the First Appellate Authority (FAA) about the Provident Fund (PF) contribution. During the assessment proceedings, the Assessing Officer (AO) observed that the employees' contribution to PF amounting to Rs. 81,815/- was made belatedly, which should be added as income of the assessee under section 2(24)(x) of the Act. The assessee argued before the FAA that payments were made within the grace period. The FAA, after considering the submissions and the assessment order, held that all payments to PF had been deposited in the government account within the grace period allowed as per the provisions of the Employees’ Provident Fund Scheme, 1952. Referring to the judgment of the Hon'ble Supreme Court in the case of Alom Extrusions (319 ITR 306), the FAA directed the AO to verify the records and delete the addition if the claim was supported by evidence. The Tribunal found that the FAA's direction was as per law and decided the first ground of appeal against the AO.2. Restriction of remuneration to the Directors:The second ground of appeal pertains to the restriction of remuneration to the Directors to Rs. 10 lakhs. During the assessment proceedings, the AO noted a significant increase in the remuneration paid to the directors from Rs. 6 lakhs in the previous year to Rs. 60 lakhs in the year under consideration. The AO observed no evidence of extra services rendered by the directors to justify the increase and considered the payment as a tax avoidance tool. Invoking the provisions of section 40A(2)(b) of the Act, the AO held that Rs. 8 lakhs was justifiable and disallowed Rs. 22 lakhs. During the appellate proceedings, the assessee argued that the remuneration was paid as per market and business exigencies. The FAA, after considering the available material, held that the disallowance made by the AO was on the higher side and restricted it to Rs. 10 lakhs. The Tribunal, following its earlier order in ITA 2893/Mum/2015, directed the FAA to pass a speaking and reasoned order after providing a reasonable opportunity to the assessee. The second ground was decided in favor of the AO, in part.3. Allowing the carryforward of unabsorbed depreciation for AY 2000-01 and 2001-02:The last ground of appeal concerns the carryforward of unabsorbed depreciation for AY 2000-01 and 2001-02 aggregating to Rs. 64.58 lakhs. The AO did not allow depreciation for the mentioned assessment years, relying on the decision of the Tribunal in the case of Times Guarantee Ltd. The FAA, after considering the submissions of the assessee and following the judgment of the Hon'ble Gujarat High Court in the case of General Motors India Pvt. Ltd. (354 ITR 244), allowed the appeal of the assessee. The Tribunal reproduced the relevant portions of the judgment, which clarified that the unabsorbed depreciation from the assessment year 1997-98 up to the assessment year 2001-02 would be carried forward to the assessment year 2002-03 and become part thereof, governed by the provisions of section 32(2) as amended by the Finance Act, 2001, and available for carry forward and set off against the profits and gains of subsequent years without any limit. Respectfully following the above judgment, the Tribunal decided the last ground against the AO.Conclusion:The appeal filed by the AO was partly allowed. The Tribunal pronounced the order in the open court on 5th April 2017.