2022 (9) TMI 826 - AT - Income Tax

Tribunal Orders Adjustment of Disallowances on Employee Contributions to PF, ESI, and Section 14A Adjustments.

Dalmia Laminators Ltd. Versus DCIT, Circle-7 (1), Kolkata

The ITAT allowed the assessee's appeal, ordering the deletion of disallowances related to employee contributions to PF and ESI, and adjustments under ... Delayed employees’ share towards ESI and PF set up for the welfare of the employee u/s 36(1)(va) read with section 2(24)(x) - amount paid within the due dates of filing of return u/s 139 - HELD THAT:- As decided in HARENDRA NATH BISWAS VERSUS DCIT, CIRCLE-29 KOLKATA [2021 (7) TMI 942 - ITAT KOLKATA] we do not accept the CIT(A)’s stand denying the claim of assessee since assessee delayed the employees contribution of EPF & ESI fund and as per the binding decision of the Hon’ble High Court in Vijayshree Ltd. [2011 (4) TMI 63 - ITAT KOLKATA] u/s 36(1)(va) of the Act since assessee had deposited the employees contribution before filing of Return of Income. Therefore, the assessee succeeds and we allow the appeal of the assessee. Disallowance u/s 14A - Expenditure incurred on exempt income - HELD THAT:- This is settled legal position that disallowance cannot exceed the exempt income. Accordingly we set aside the order of ld. CIT(A) on this issue and direct the AO to restrict the disallowance to exempt income. Disallowance u/s 14A to book profit u/s 115JB - HELD THAT:- After hearing the rival contention and perusing the applicable provisions of law with the ratio laid down by various judicial forums, we set aside the order of ld. CIT(A) and direct the AO not to make any addition to book profit qua the disallowance u/s 14A. The ground is allowed. Issues:1. Appeal against order passed by National Faceless Appeal Centre under Income-tax Act, 1961.2. Disallowance of employee's contribution to PF & ESI.3. Disallowance made under section 14A.4. Restriction of disallowance to the extent of expenses incurred to earn exempt income.5. Confirmation of addition for disallowance u/s 14A in computing book profit u/s 115JB.Analysis:Issue 1:The appeal was filed against the order passed by the National Faceless Appeal Centre under the Income-tax Act, 1961. The delay in filing the appeal was condoned by the Appellate Tribunal due to valid reasons provided by the appellant.Issue 2:The core issue was the disallowance of the employee's share contribution towards ESI and PF under sections 36(1)(va) and 2(24)(x) of the Income Tax Act, 1961. Despite a delay in depositing the contributions, they were paid before the due date of filing the return. The Tribunal found that the issue was covered by relevant case laws, including a decision by the Calcutta High Court, favoring the assessee. The Tribunal ruled in favor of the assessee based on the applicable law for the assessment year in question.Issue 3:The disallowance made under section 14A was challenged. The Tribunal directed the Assessing Officer to restrict the disallowance to the extent of the exempt income earned by the assessee, in line with settled legal principles.Issue 4:The appellant contested the direction by the National Faceless Appeal Centre to restrict the disallowance to the expenses incurred to earn exempt income. The Tribunal set aside this order and directed the AO to limit the disallowance to the actual amount of exempt income earned by the assessee.Issue 5:Regarding the addition for disallowance under section 14A in computing book profit under section 115JB, the Tribunal ruled in favor of the assessee. It directed the AO not to make any addition to the book profit concerning the disallowance under section 14A.In conclusion, the Appellate Tribunal allowed the appeal of the assessee, ordering the deletion of the impugned additions made by the lower authorities. The decision was pronounced in an open court on 14th September 2022.