2018 (2) TMI 1373 - HC - Income Tax

High Court upholds ITAT & CIT(A), dismisses appeal on Section 40(a)(ia) & interest expenses.

Pr. Commissioner of Income Tax, Jaipur-II, Jaipur Versus Shri Shailendra Garg, C/o M/s Garment Craft India (P) Ltd.

Pr. Commissioner of Income Tax, Jaipur-II, Jaipur Versus Shri Shailendra Garg, C/o M/s Garment Craft India (P) Ltd. - TMI Issues Involved:1. Justification of ITAT in deleting the addition made under Section 40(a)(ia) for non-deduction of tax at source and holding it not covered under Section 194H.2. Justification of ITAT in deleting the addition made for depositing employees' contribution to PF & ESI beyond the prescribed time limit.3. Justification of ITAT in holding that employees' contribution to PF & ESI are governed by Section 433 and not by Section 36(1)(va) read with Section 2(24)(x) of the Income Tax Act.Issue-wise Detailed Analysis:1. Justification of ITAT in Deleting the Addition under Section 40(a)(ia):The appellant challenged the tribunal's decision to uphold the CIT(A)’s order, which deleted the addition of Rs. 66,37,834/- made by the Assessing Officer (AO) under Section 40(a)(ia) for non-deduction of tax at source, arguing it was not covered under Section 194H. The tribunal observed that the issue was well-settled by various judicial precedents, including the Rajasthan High Court judgments in CIT vs. SBBJ and Jaipur Vidhyut Vithran Nigam Ltd., holding that the employee's contribution to EPF and ESI deposited before the due date of filing the return entitles the assessee to a deduction. The tribunal found no reason to interfere with the CIT(A)’s order, which was affirmed.2. Justification of ITAT in Deleting the Addition for Late Deposits of PF & ESI:The appellant contested the tribunal's decision to uphold the CIT(A)’s deletion of the addition of Rs. 1,79,838/- for late deposits of employees' contributions to PF & ESI. The tribunal referenced the CIT(A)’s findings, which noted that the AO had not made any inquiries or brought any material on record to support the claim that the discount was in the nature of commission. The tribunal upheld the CIT(A)’s observation that the AO’s conclusion was based on general observations without specific inquiries, and thus, the deletion of the addition was justified.3. Justification of ITAT in Holding PF & ESI Contributions Governed by Section 433:The appellant argued against the tribunal's decision that employees' contributions to PF & ESI are governed by Section 433 and not by Section 36(1)(va) read with Section 2(24)(x). The tribunal, referencing CIT vs. SBBJ and other precedents, concluded that the contributions deposited before the due date of filing the return are deductible. The tribunal found no contrary material to dispute the CIT(A)’s findings and affirmed the order, rejecting the revenue’s grounds.Additional Observations:The tribunal and CIT(A) both noted that the AO had not substantiated the disallowance of interest expenses and other claims with sufficient evidence or inquiries. The CIT(A) found that the AO had not demonstrated that the loan was used for non-business purposes, and thus, the disallowance of interest expenses was deleted. The tribunal upheld this decision, finding no reason to interfere with the CIT(A)’s order.Pending Supreme Court Decision:Regarding issues related to PF & ESI contributions, the tribunal noted that the controversy is pending before the Supreme Court in SLP No.16249/2014 (The State of Rajasthan CIT, Jaipur vs. M/s. State Bank of Bikaner and Jaipur). Hence, these issues were decided subject to the outcome of the SLP.Conclusion:The High Court found no substantial questions of law arising from the appeal and dismissed it, affirming the tribunal and CIT(A)’s decisions.