2018 (1) TMI 987 - AT - Income Tax

Tax Tribunal allows appeal on various expenditure issues under Income Tax Act, 1961

The Tribunal allowed the appeal filed by the assessee on all issues raised, including the disallowance of legal and professional charges, expenditure ... Disallowance of legal and professional charges - Held that:- As decided in assessee’s own case for the assessment year 2009-10 [2016 (1) TMI 772 - ITAT DELHI] the work assigned to the consulting firm was completed in F.Y. 2004-05. The assessee has maintained the books of account in mercantile system and he did not make any provision in this regard in his books of account. There appears no good reason to make payment of legal fee during the year for such work which stood completed 3-4 years before the payment of such fee. There is no agreement on record to indicate that the assessee may make such payments whenever he thinks fit. - expenses allowed. - Decided in favor of assessee. Payment of rates and taxes - whether capital expenditure - Held that:- the payments were made based on laws of the Government and in connection with the business. The bills or receipts of the payments nowhere show that the alleged payments were in the nature of penalty. - claim of expenses allowed as revenue expenditure - Decided in favor of assessee. Addition u/s. 43B - payments made late on account of ESI and Provident Fund - Held that:- In this case the payments were made before filing of the due date of the return of income and hence the same is allowable under section 43B. Our aforesaid view is fortified by the decision of the Hon’ble Supreme Court of India in the case of CIT vs. Alom Extrusions Ltd. (2009 (11) TMI 27 - SUPREME COURT) wherein, it has been held that the employer's contribution was liable to be allowed, since it was deposited by the due date for the filing of the return. - Decided in favour of assessee. Issues:1. Disallowance of legal and professional charges2. Disallowance of expenditure under the head rates and taxes3. Disallowance of employees' contribution towards EPF and ESI4. Allowability of payments made late on account of ESI and Provident FundIssue 1: Disallowance of Legal and Professional ChargesThe assessee appealed against the order of the Ld. CIT(A) restricting the disallowance of legal and professional charges. The Tribunal referred to a previous case involving similar issues and held that the expenses were allowable. The Tribunal emphasized that the payment must relate to the assessee and be accounted for in the books of account. The Tribunal allowed the appeal based on the precedent set in the earlier case.Issue 2: Disallowance of Expenditure under the Head Rates and TaxesThe Tribunal considered the disallowance of expenses incurred towards rates and taxes. The Assessing Officer disallowed the expenses, claiming they were in the nature of penalty imposed by MCD for unauthorized construction. However, the CIT(A) deleted this disallowance, stating that the payment's relation to the assessee and proper accounting were crucial. The Tribunal, following the CIT(A)'s reasoning, allowed the ground raised by the assessee regarding this issue.Issue 3: Disallowance of Employees' Contribution towards EPF and ESIThe Tribunal reviewed the disallowance of employees' contribution towards EPF and ESI under section 36(1)(va) of the Income Tax Act, 1961. The assessee argued that the payments were made before the due date of the return of income and were allowable under section 43B. Citing a Supreme Court decision, the Tribunal held that the contributions were liable to be allowed since they were deposited by the due date for filing the return. Consequently, the Tribunal allowed the appeal filed by the assessee on this issue.Issue 4: Allowability of Payments Made Late on Account of ESI and Provident FundThe Tribunal addressed the confirmation of disallowance of payments made late on account of ESI and Provident Fund under section 43B of the Act. Relying on a Supreme Court decision, the Tribunal concluded that the payments made before the due date of the return of income were allowable under section 43B. Consequently, the Tribunal allowed the appeal filed by the assessee on this issue.In conclusion, the Tribunal allowed the appeal filed by the assessee on all the issues raised, emphasizing the proper relation of payments to the assessee and compliance with accounting standards for expenses to be considered allowable under the Income Tax Act, 1961.