2018 (2) TMI 1338 - AT - Income Tax

Tribunal upholds disallowances on Provident Fund, ESIC, vendor payment, and commission expenses.

CB Doctor Ventilators Pvt. Ltd. Versus ITO, Ward – 1 (3), Ahmedabad

The Tribunal upheld the disallowances related to employees' contributions to Provident Fund and Employees' State Insurance, cash payment to a vendor under ... Payments of employees’ contribution to PF - Delay in remitting amount within due date - Held that:- Since the payments of employees’ contribution to PF was not remitted within due date or the grace period as extended under the relevant Act. - Decided against assessee. Disallowance u/s 40A(3) on account of payment made in cash to Shri Kantilal Zaveri - Held that:- We are not convinced with the reply of the assessee that payment of Kantilal Zaveri made in exceptional circumstances is not convincible as appellant has not clarified that how exceptional circumstances were there at the time of making cash payment. Therefore, we dismiss this ground of appeal of the assessee. Disallowance of expenditure on payment of commission to C. Doctor India Private Limited - Appellant stated before the lower authorities that commission has been made in consideration of the services rendered by the person in procuring the orders, without whose service, the assessee company could not have procured the orders from BHEL - Held that:- When show-cause notice was issued to the appellant, has not given any reply or explanation in this regard. Since assessee has been failed to give any reply or explanation with regard to commission payment. In our considered opinion, this expenditure was rightly disallowed by the authorities below - Assessee appeal dismissed. Issues:1. Disallowance of employees' contribution to Provident Fund and Employees' State Insurance Contribution.2. Disallowance under Section 40A(3) for cash payment to a vendor.3. Disallowance of commission expenses paid to a third party.Issue 1: Disallowance of employees' contribution to Provident Fund and Employees' State Insurance Contribution:The appellant contested the disallowance of Rs. 2,87,477 and Rs. 22,076 for belated payments of employees' contributions to Provident Fund and ESIC. The appellant argued that the disallowance under Section 36(1)(va) was incorrect and cited various judicial pronouncements to support their case. However, the Tribunal upheld the disallowance, citing the Gujarat High Court's decision that disallowance is justified if the contributions are not remitted by the due date, even if paid before filing the return.Issue 2: Disallowance under Section 40A(3) for cash payment to a vendor:The appellant challenged the disallowance of Rs. 24,220 made under Section 40A(3) for a cash payment to a vendor. The Tribunal found that the appellant failed to provide a convincing explanation for the exceptional circumstances necessitating the cash payment. Consequently, the disallowance was upheld as the appellant could not justify the deviation from the prescribed payment method.Issue 3: Disallowance of commission expenses paid to a third party:The appellant contested the disallowance of Rs. 6,16,371 paid as commission to a third party for securing sale orders. The Tribunal noted that the appellant did not adequately explain the necessity of the commission payment despite being asked by the authorities. As a result, the disallowance was upheld as the appellant failed to provide a satisfactory explanation for the commission expenses.In summary, the Tribunal dismissed the appeal filed by the assessee, upholding the disallowances related to employees' contributions, cash payment to a vendor, and commission expenses. The Tribunal's decision was based on the failure of the appellant to provide sufficient justifications and explanations for the contested expenses.