2022 (7) TMI 1076 - AT - Income Tax

Tribunal Upholds Business Purpose of Advances & Provident Fund Deduction

Addl. CIT, Special Range-4, New Delhi Versus Gaursons Realty Pvt. Ltd.

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s order on all grounds. The Tribunal confirmed that the advances made were for business ... Disallowance of interest interest paid to Bank of Baroda and Andhra Bank - purpose of advances given - HELD THAT:- Issue is same as in the AY 2014-15 [2018 (5) TMI 799 - ITAT DELHI] The Tribunal in its order (supra) has recorded the finding that sum given as advance to Gaursons Realtech Pvt. Ltd. was for the purpose of the acquisition of the land and sum deposited as share application with Gaursons Realtech Pvt. Ltd. was for the purpose of the business of the assessee company and therefore, interest applicable to these advances cannot be disallowed. Moreover, it is the contention of the assessee that the Revenue has not established any nexus between the borrowed funds and interest free advances to the related party. The impugned disallowance of interest is entirely based on the assessment order of the preceding AY 2014-15. Not only this, no finding has been recorded by the Ld. AO that the money borrowed has been utilised by the assessee company for purposes other than its business. It has been brought to our notice that the Revenue had gone in appeal before the Hon’ble High Court of Delhi against the order of the Tribunal for AY 2014-15 in the case of the assessee and Hon’ble High Court [2020 (2) TMI 1099 - DELHI HIGH COURT] upheld the order of tribunal observing there were sufficient interest- free funds available with the assessee, allowing them to advance the loans in question. Thus, the Tribunal, in our view was correct in concluding that it could not be said that it was the interest-bearing loan obtained from Bank of Baroda and Andhra Bank which had been advanced as interest-free loan to M/s Gaursons India Ltd. Thus we hold that the appeal of the Revenue on the issue is without any substance. The Ld. CIT(A) was perfectly justified in deleting the impugned disallowance. We uphold the order of the Ld. CIT(A) on the point and reject ground No. 1 and 2 of the Revenue. Delayed deposit of employee’s contribution towards Provident Fund - violation of the provision of section 36(1)(va) of the Act and CBDT Circular No. 22/2015 dated 17.12.2015 - HELD THAT:- As relying on Aimil Ltd. [2009 (12) TMI 38 - DELHI HIGH COURT] where the assessee company made payment of employee’s contributions to Employee’s Provident Fund (EPF) after due date of payment under EPF Act but before date of filing of return, the assessee company would be entitled to deduction of such payment. We, therefore, endorse the findings of the Ld. CIT(A) and decide the issue against the Revenue Issues Involved:1. Disallowance of interest on advances made for business purposes.2. Allowability of interest under Section 36(1)(iii) of the Income Tax Act.3. Deduction of employee's contribution towards Provident Fund deposited beyond the due date.Issue-wise Detailed Analysis:1. Disallowance of Interest on Advances Made for Business Purposes:The Revenue contended that the advances made by the assessee were not for business purposes and were therefore disallowed. The Tribunal referenced its earlier decision for AY 2014-15, where similar disallowances were reversed. The Tribunal observed that the advances made to Gaursons Realtech Pvt. Ltd. were for the acquisition of land, which was a business purpose. The Tribunal noted that the funds were advanced under a Memorandum of Understanding for purchasing land, which was essential for the assessee's real estate business. The Tribunal concluded that these advances were for commercial purposes and could not be considered as diversion of interest-bearing funds for non-business purposes. The Tribunal upheld that the interest applicable to these advances could not be disallowed.2. Allowability of Interest under Section 36(1)(iii):The Tribunal noted that the disallowance of interest by the Assessing Officer (AO) was based on the assessment order of the preceding year (AY 2014-15). The Tribunal found that there was no change in the amount of share application money and loans given to Gaursons Realtech Pvt. Ltd. during AY 2015-16 compared to AY 2014-15. The Tribunal highlighted that the Revenue had not established any nexus between the borrowed funds and interest-free advances to related parties. The Tribunal also noted that the Hon'ble Delhi High Court had upheld the Tribunal's order for AY 2014-15, confirming that the advances were for business purposes. Consequently, the Tribunal held that the AO's disallowance of interest for AY 2015-16 was without substance and upheld the CIT(A)'s deletion of the disallowance.3. Deduction of Employee's Contribution towards Provident Fund Deposited Beyond the Due Date:The AO disallowed the deduction of Rs. 10,840/- towards employee's contribution to Provident Fund, as it was deposited beyond the due date prescribed under Section 36(1)(va) of the Act. However, the CIT(A) allowed the deduction, noting that the amount was deposited before the due date of filing the income tax return. The CIT(A) referred to the decision of Hon'ble Delhi High Court in CIT vs. Aimil Ltd. (321 ITR 508), which held that no disallowance could be made if the payment was made before the due date of filing the return. The Tribunal observed that various High Courts have consistently held that payments made before the due date of filing the return are allowable deductions. The Tribunal endorsed the CIT(A)'s findings and decided the issue against the Revenue.Conclusion:The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s order on all grounds. The Tribunal confirmed that the advances made by the assessee were for business purposes and that the interest applicable to these advances could not be disallowed. Additionally, the Tribunal upheld the CIT(A)'s decision to allow the deduction of employee's contribution to Provident Fund deposited before the due date of filing the return, despite being deposited beyond the due date under the relevant Act.