Tribunal allows appeal on PF contribution disallowance but remands CSR expenses for further verification

The Tribunal allowed the appeal in favor of the assessee regarding the disallowance of Employees' Contribution to PF under Section 36(1)(va) of the Income Tax Act, 1961, as the contribution was deposited before the due date for filing the return of income. However, the Tribunal remanded the disallowance of Corporate Social Responsibility (CSR) expenses under Section 37 back to the Assessing Officer for verification of voluntary nature and statutory requirements. The Tribunal treated the general nature ground as allowed for statistical purposes, with the order pronounced on 12.08.2022.

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Issues Involved:
1. Disallowance of Employees' Contribution to PF under Section 36(1)(va) of the Income Tax Act, 1961.
2. Disallowance of Corporate Social Responsibility (CSR) expenses under Section 37 of the Income Tax Act, 1961.

Detailed Analysis:

Ground No. 1: Disallowance of Employees' Contribution to PF
Issue:
The assessee challenged the disallowance of Rs. 30,49,649/- related to the delayed deposit of employees' contribution to the Provident Fund (PF) under Section 36(1)(va) of the Income Tax Act, 1961.

Findings:
- The assessee argued that the contribution was deposited before the due date for filing the return of income, citing the decision of the Calcutta High Court in CIT, Kolkata vs. M/s Vijay Shree Limited, which was also followed by the ITAT Kolkata in Harendra Nath Biswas vs. DCIT.
- The Tribunal found the issue covered in favor of the assessee, noting that the assessment year involved was AY 2017-18, and Explanation-5 to Section 43B inserted by the Finance Act, 2021, effective from 01.04.2021, was not applicable retrospectively.
- The Tribunal cited the decision in Harendra Nath Biswas vs. DCIT, where the delayed deposit of employees' contribution to PF and ESI was allowed as the deposit was made before the due date of filing the return of income.

Conclusion:
The Tribunal ordered the deletion of the impugned addition made by the lower authorities, thus allowing the appeal in favor of the assessee on this ground.

Ground No. 2: Disallowance of Corporate Social Responsibility (CSR) Expenses
Issue:
The assessee contested the disallowance of Rs. 3,01,00,000/- incurred on CSR activities under Section 37 of the Income Tax Act, 1961.

Findings:
- The AO disallowed the CSR expenses, citing Explanation 2 to Section 37, which states that CSR expenses referred to in Section 135 of the Companies Act shall not be deemed as expenditure incurred for business purposes.
- The assessee argued that the CSR expenses were incurred voluntarily for business purposes, beyond statutory requirements, to maintain good relations with the local community and ensure smooth business operations.
- The Tribunal noted the assessee's claim that the CSR expenses were not mandated under Section 135 of the Companies Act, as the financial statements indicated no statutory requirement for CSR expenditure.
- The Tribunal referenced the Gujarat High Court decision in PCIT vs. Narmada Valley Fertilizer and Chemicals Ltd., which allowed voluntary CSR expenses as business expenditure if not mandated under Section 135.
- However, the Tribunal found no evidence that the assessee was exempt from the statutory CSR requirement and noted discrepancies in the financial statements.

Conclusion:
The Tribunal remanded the matter to the AO to verify whether the CSR expenses were indeed voluntary and beyond statutory requirements. If the AO finds the assessee's claim valid, the expenses will be allowed as business expenditure. Otherwise, the disallowance will stand, and the AO is directed to re-open assessments for earlier years where similar claims were made.

Ground No. 3: General Nature
Issue:
The appellant sought leave to add, amend, alter, or delete grounds of appeal.

Findings:
The Tribunal found this ground to be general and not requiring adjudication.

Conclusion:
The appeal was treated as allowed for statistical purposes, subject to the observations and directions given.

Order Pronouncement:
The order was pronounced in the open court on 12.08.2022.

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