2021 (11) TMI 926 - AT - Income Tax

Tribunal directs deductions for employee contributions, exempts educational expenses, and clarifies Finance Act amendment.

Lumino Industries Ltd. Versus ACIT, Circle-5 (1), Kolkata, Navayug Labour Contractors Pvt. Ltd. Versus CPC, Bangalore, Jagannath Concrete Poles Versus CPC, Bangalore, Sandeep Mech. Engineers Ltd. Vs. CPC, Bangalore And Jaimatadi Castings Pvt. Ltd. Versus CPC, Bangalore

The Tribunal allowed the appeals of the assessees, directing the AO to allow deductions for employees' contributions made before the due date of filing ... Contribution of employees’ share towards ESI, PF, Superannuation Fund or any other fund set up for the welfare of the employee u/s 36(1)(va) read with Section 2(24)(x) when the payments were made within the due dates of filing of return u/s 139 - whether the amendment brought in by Finance Act, 2021, is retrospective or prospective in operation? - HELD THAT:- When we adjudicate whether the view of Ld CIT(A) that the explanation 2 brought in by Finance Act, 2021 is retrospective, let us look at the “Notes on Clauses and the relevant clauses 8 & 9 of the Finance Bill, 2021 (supra) pertaining to the issue in hand which in clear and unambiguous terms spells out the intention of Parliament that the amendment shall take effect from 1st April, 2021 and therefore will accordingly apply to Assessment Year 2021-22 and subsequent years. So since the legislative intent is clear, the amendment brought in by Finance Act, 2021 on this issue as discussed is prospective and Ld. CIT(A) erred in holding otherwise. So till AY 2021-22, the Jurisdictional High Court’s view in favor of assessee will hold good and is binding on us. As relying on the ratio of the Hon’ble Supreme Court in the case of Vatika Township Pvt. Ltd. [2014 (9) TMI 576 - SUPREME COURT] and M/s Snowtex Investment Ltd. [2019 (5) TMI 1165 - SUPREME COURT] and also taking note of the binding decision of the Hon’ble Jurisdictional Calcutta High Court on this issue before us in Shri Vijayshree Ltd. Ltd.[2011 (9) TMI 30 - CALCUTTA HIGH COURT] M/s Coal India Ltd [2015 (8) TMI 1451 - CALCUTTA HIGH COURT], M/s Akzo Nobel India Ltd. [2016 (6) TMI 1128 - CALCUTTA HIGH COURT], we set aside the impugned order of Ld CIT(A) and direct the AO to allow the claim of deduction in respect of employees contribution shares towards ESI, PF, by the assessee before the due date of filing of return u/s 139(1) of the Act. Therefore the appeal of assessee succeeds and so, it is allowed in favor of assessee. Disallowance u/s 14A - HELD THAT:- Since there is no dispute that assessee did not earn any exempt income, we are of the view that no disallowance u/s 14A of the Act was warranted. For taking such a view, we rely on the decision of the Hon’ble Delhi High Court in Chem Investments [2015 (9) TMI 238 - DELHI HIGH COURT] - Therefore we direct the deletion of the addition /disallowance made by the AO in this regard. Disallowing expenditure incurred on educational sponsorship of assessee company’s Director’s son - HELD THAT:- Since in the present case there is a nexus with expenses incurred for the higher education of Shri Jay Goel with the business of the assessee company and the recipient of sponsorship has later joined the services of assessee company and is discharging the duties as CEO of the assessee company, the expenditure incurred should be allowed since it has nexus with the business of the assessee. This ground of the assessee stands allowed. Accrual of income - retention money retained by the debtors during the relevant previous year - taken into account while computing the profits and gains of the assessee’s business for the assessment year under consideration - HELD THAT:- Since we note that the retention money kept with the Electricity Board which would be released latter only once the assessee fulfills all the obligations under the contract then only the assessee would acquire the right to receive such retention money so this is contingent in nature, so the amount in question cannot be held to have been accured to the assessee and since on facts the assessee has not received the same, even by applying the concept of real income theory, the money retained by the Electricity Board cannot be brought to tax. Thus, we note that in this year under consideration, since no enforceable liability has accrued or arisen, so, it cannot be said that the assessee had any vested right to receive the retention money in question. Assessee had no right to claim any part of the retention money till the verification of the satisfactory execution of the contract is over. Therefore, in this assessment year the retention money retained by the electricity Board cannot be treated as income of the assessee and even though the assessee due to mistake of fact has offered the same as income this year in its Return of Income, deduction of the same should be given and since the decision of the Hon’ble Supreme Court in M/s Goetz India Goetz India [2006 (3) TMI 75 - SUPREME COURT] does not come in the way of the Tribunal as held by the Hon’ble Supreme Court as noted (supra), so we set aside the impugned order of Ld CIT(A) and direct the AO to give relief to the assessee on this issue. However, it is clarified that when the assessee receives or when this amount accrues to the assessee, then it should be taxed in that assessment year and not in this assessment year - Decided in favour of assessee. Issues Involved:1. Disallowance of employees' contribution towards ESI, PF, Superannuation Fund under Section 36(1)(va) read with Section 2(24)(x) of the Income Tax Act, 1961.2. Disallowance of expenses for earning exempt income under Section 14A of the Income Tax Act, 1961.3. Disallowance of expenditure incurred on educational sponsorship.4. Retention money treated as income.5. Change in opinion of revenue for subsequent assessment years.6. Non-admission of claim for deduction of retention money.Issue-wise Detailed Analysis:1. Disallowance of Employees' Contribution Towards ESI, PF, Superannuation Fund:The primary issue was whether the employees' contribution towards ESI, PF, and other funds paid after the due date prescribed under the respective Acts but before the due date of filing the return under Section 139(1) of the Income Tax Act, 1961, should be allowed as a deduction. The AO disallowed the deduction based on Section 36(1)(va) read with Section 2(24)(x) and CBDT Circular No. 22/2015. The CIT(A) upheld the AO's decision citing the amendment by Finance Act, 2021, which clarified that Section 43B does not apply to Section 36(1)(va). However, the Tribunal held that the amendment by Finance Act, 2021, is prospective and not retrospective. Therefore, the Tribunal directed the AO to allow the deduction as the contributions were made before the due date of filing the return.2. Disallowance of Expenses for Earning Exempt Income:The assessee argued that no exempt income was earned during the year, and hence, no disallowance under Section 14A was warranted. The Tribunal noted that the AO acknowledged the absence of exempt income. Relying on the decision of the Hon'ble Delhi High Court in Chem Investments, the Tribunal held that no disallowance under Section 14A was warranted in the absence of exempt income and directed the deletion of the addition.3. Disallowance of Expenditure on Educational Sponsorship:The AO disallowed the expenditure incurred on the educational sponsorship of Mr. Jay Goel, citing it as a personal expense and a colorable device. The CIT(A) upheld the AO's decision. The Tribunal, however, noted that Mr. Jay Goel had signed an agreement to join the assessee company after completing his education and was appointed as CEO. The Tribunal found a nexus between the expenditure and the business of the assessee and allowed the deduction, relying on the decision of the Hon'ble Karnataka High Court in CIT vs. Ras Information Technologies (P) Ltd.4. Retention Money Treated as Income:The AO treated the retention money retained by the debtors as income, which was upheld by the CIT(A). The Tribunal noted that the retention money was contingent upon the fulfillment of certain obligations and was not an enforceable right during the relevant assessment year. Citing the Hon'ble Calcutta High Court's decision in CIT vs. Simplex Concrete Piles (India), the Tribunal held that the retention money should not be treated as income until the obligations are fulfilled. The Tribunal directed the AO to exclude the retention money from the income for the relevant assessment year.5. Change in Opinion of Revenue for Subsequent Assessment Years:The Tribunal did not specifically address this issue separately but implied that the principles applied in the current assessment year should be consistent with subsequent years unless there is a change in facts or law.6. Non-admission of Claim for Deduction of Retention Money:The AO and CIT(A) did not admit the claim for deduction of retention money as it was not made through a revised return. The Tribunal, however, allowed the deduction, emphasizing that the retention money was contingent and citing the Hon'ble Supreme Court's clarification in Goetz India Ltd. that the Tribunal has the power to admit such claims.Conclusion:The Tribunal allowed the appeals of the different assessees, directing the AO to allow the deductions for employees' contributions made before the due date of filing the return, to delete the disallowance under Section 14A in the absence of exempt income, to allow the educational sponsorship expenses, and to exclude the retention money from income until the obligations are fulfilled.