2020 (10) TMI 23 - AT - Income Tax

Tribunal partially allows appeal on EPF contributions, disallows capital expenses, upholds depreciation and adhoc expenses.

Kalinga Institute of Social Sciences (KISS) Versus JCIT, Range-2, Bhubaneswar

The Tribunal partly allowed the appeal for statistical purposes, directing the AO to re-examine the issue of EPF contributions. The disallowance of ... Exemption u/s 11 - deemed registered u/s 12AA - registration to be granted during the pendency of the appeal or assessment - disallowance of capital expenditure - HELD THAT:- In the instant case, the registration u/s.12A of the Act has already been granted on 14.09.2011 when there was neither any appeal nor any assessment was pending either before the first appellate authority or before the AO. Therefore, there were no any assessments pending before the revenue authorities. In view of this case law relied on by the ld. AR of the assessee is not applicable in the present case in hand. At the time of hearing, a specific query was raised by the Bench to the parties as to whether any assessment or any appeal was pending before granting registration for any assessment year. In response to the same, ld. DR stated at bar that no assessment nor any appeal was pending before the authorities below, to which ld. AR could not controvert the same. Registration was not granted on 14.09.2011 w.e.f.01.04.2011. Therefore, without registration u/s.12AA of the Income Tax Act in the hands of the assessee the benefit of Section 11 of the Act cannot be given. The case law relied on by the ld.DR in the case of U.P.Forest Corporation [2007 (11) TMI 303 - SUPREME COURT] supports the view rendered by us. Therefore, the CIT(A) as well as the AO has rightly denied giving exemption u/s.11 of the Act invested in the capital assets - Accordingly, ground No.1 of the appeal of the assessee is dismissed. Addition of excess depreciation - HELD THAT:- We do not agree with the submissions of the assessee that for the purpose of income tax the assessee must calculate/follow the income tax rules and regulations. We find from the order of the authorities below that the assessee had calculated depreciation on the normal accounting practice which is not sustainable because as per the income tax act while calculating the profit for the taxation purpose, the assessee must follow the income tax provisions and the depreciation has been provided in Section 32 - assessee himself calculated the depreciation as per his precedence. Res judicata does not apply in the income tax Act. Therefore, the lower authorities have rightly dismissed the excess depreciation claimed by the assessee.This ground No.2 is also dismissed. Disallowance u/s.40A(3) - assessee has made advance cash payments to its employees for the purchase of vegetables and chickens and the employees of the assessee used to purchase the vegetables and chicken from the market for providing meals to the students of the school as the assessee is running a residential school - HELD THAT:- We agree with the above contentions of the assessee considering the practicality of the circumstances and the fact that the assessee has made payment to the employees for purchase of vegetables etc. from the market - vegetables, fruits are coming under the agricultural products which are supplied by the green grocers and small vendors or vegetable sellers. Similarly, chickens are coming under the animal husbandry products, which are supplied by the chicken centres, therefore, payments made for purchase of agricultural and animal husbandry products for use of students in hostel are not be disallowed u/s.40A(3) - direct the AO to delete the addition made u/s.40A(3) - Ground No.3 of the appeal of the assessee is allowed. Adhoc disallowance @10% of the expenses - HELD THAT:- Assessee could not controvert the findings recorded by the authorities below in respect of addition made by the AO and confirmed by the CIT(A). The assessee has submitted statement of gardening & cultural expenses for the financial year 2010-2011 - expenses have not been clarified that on what basis/object the expenditure have been incurred, neither any narration has been quoted for the said expenses. In view of this, we also uphold the action of lower authorities on this issue. Thus, ground No.4 is dismissed. Late payment of provident fund u/s. 36(1)(va) - HELD THAT:- assessee has not deposited the employees contribution within the due date as specified in that particular Act - substance in the submissions of DR that Section 36(1)(va) deals with the deduction in respect of the sum received by the assessee from any of his employees to which the provisions of sub- section 2(24)(x) of the Act applies, provided such sum is credited by the assessee to the employee’s account in relevant fund on or before the due date. The ‘due date’ is defined under the Explanation to section 36(1)(va) of the Act by stating that the due date referred under the relevant Act and certainly not the due date for filing the return. As decided in MILIND GUPTA, [2019 (10) TMI 128 - ITAT CUTTACK] Tribunal has restored the issue to the file of AO to examine the contributions made with reference to dates when they were actually made and grant relief to such of claim which qualified for such relief in terms of prevailing provisions of the Act. Accordingly, the issue in the present appeal, being similar we also restore this issue to the file of AO to decide the same in the terms as observed by the Tribunal cited above - Decided in favour of assessee for statistical purposes. Issues Involved:1. Disallowance of capital expenditure as application of income under Section 11.2. Disallowance of depreciation.3. Disallowance under Section 40A(3) for cash payments.4. Adhoc disallowance of gardening and cultural expenses.5. Disallowance of employees' contribution to EPF under Section 36(1)(va).Detailed Analysis:1. Disallowance of Capital Expenditure as Application of Income:The primary issue is whether the capital expenditure of Rs. 7,94,06,622 can be considered as application of income under Section 11 of the Income Tax Act. The assessee argued that due to the amended provisions of Section 12A, they should be deemed registered under Section 12AA. However, the Tribunal noted that the registration was granted effective from 01.04.2011, which does not cover the assessment year 2011-2012. The Tribunal emphasized that the assessment must be pending before the Assessing Officer at the time of registration to benefit from the amended provisions. Since there was no pending assessment or appeal before the registration, the benefit cannot be extended. Thus, the Tribunal upheld the disallowance of the capital expenditure.2. Disallowance of Depreciation:The assessee claimed depreciation of Rs. 14,99,740, which was disallowed by the AO on the grounds that it was not calculated as per the provisions of Section 32 of the Act. The Tribunal agreed with the lower authorities, stating that the assessee must follow the Income Tax provisions for calculating depreciation, and upheld the disallowance.3. Disallowance under Section 40A(3) for Cash Payments:The AO disallowed Rs. 16,09,533 under Section 40A(3) for cash payments exceeding Rs. 20,000. The assessee argued that the payments were made to employees for purchasing vegetables and chickens, which fall under agricultural and animal husbandry products exempted under Rule 6DD. The Tribunal accepted the assessee's contention, considering the practical circumstances and the nature of the products. Therefore, the Tribunal directed the AO to delete the disallowance under Section 40A(3).4. Adhoc Disallowance of Gardening and Cultural Expenses:The AO made an adhoc disallowance of Rs. 3,67,309, which was 10% of the gardening and cultural expenses, due to lack of proper verification of bills and vouchers. The Tribunal upheld the disallowance, noting that the assessee failed to provide sufficient clarification or documentation to substantiate the expenses.5. Disallowance of Employees' Contribution to EPF:The assessee's contribution to EPF amounting to Rs. 17,46,576 was disallowed under Section 36(1)(va) as it was not deposited within the due date specified under the relevant Act. The Tribunal referred to various case laws and noted that the majority view favors allowing the deduction if the contribution is deposited before the due date of filing the return under Section 139(1). The Tribunal restored the issue to the AO to examine the contributions with reference to the actual dates of payment and grant relief accordingly.Conclusion:The Tribunal partly allowed the appeal for statistical purposes, directing the AO to re-examine the issue of EPF contributions. The disallowance of capital expenditure, depreciation, and adhoc expenses were upheld, while the disallowance under Section 40A(3) was deleted.