2022 (12) TMI 446 - AT - Income Tax

Appeals partially allowed on disallowances under Sections 14A and 80JJAA, additional depreciation under Section 32. Upheld disallowance of employees' contributions.

The appeals were partly allowed, granting relief on disallowances under Sections 14A and 80JJAA, and additional depreciation under Section 32. However, ... Condonation of delay by exclusion of COVID-19 period for limitation - section 14A disallowance - proviso to section 32(1) regarding additional depreciation for assets used less than 180 days - employees' contribution to Provident Fund and operation of section 36(1)(va) and non-applicability of section 43B - deduction under section 80JJAA for employment of new regular workmenCondonation of delay by exclusion of COVID-19 period for limitation - Admission of the appeals by condoning the delay caused in filing appeals. - HELD THAT: - The Tribunal recorded that the appeals were time-barred by 1146 and 699 days respectively and an application for condonation was filed. Relying on the judgment of the Hon'ble Supreme Court referred to in the order, the period from 15.03.2020 to 28.02.2022 was excluded for computing limitation. Since the limitation period applicable to the assessee fell within the excluded period on account of COVID-19 restrictions, the Tribunal extended the limitation and condoned the delay, admitting the appeals for adjudication. [Paras 2]Delay condoned and appeals admitted for adjudication.Section 14A disallowance - Deletion of disallowances made under section 14A for both assessment years where no exempt income was earned. - HELD THAT: - Both parties agreed that no exempt income was earned in the relevant years. Following consistent judicial precedents of the jurisdictional High Courts and recent decisions, the Tribunal held that section 14A cannot be invoked where no exempt income is earned during the year. Consequently, the disallowances made under section 14A (Rs.1,89,447 and Rs.68,280 for AYs 2013-14 and 2014-15 respectively) were deleted and the findings of the CIT(A) on this aspect were reversed. [Paras 5]Disallowances under section 14A deleted for both years.Proviso to section 32(1) regarding additional depreciation for assets used less than 180 days - Allowing balance 50% of additional depreciation in the succeeding year where assets were used for less than 180 days in the year of purchase. - HELD THAT: - The Assessing Officer disallowed the balance 50% of additional depreciation claimed in AY 2014-15 for assets purchased and put to use for less than 180 days in AY 2013-14. The Tribunal referred to prior Tribunal and High Court reasoning that the amended proviso to section 32(1) (effective from 01.04.2016) operates curatively to remove discrimination and permits the balance additional depreciation to be claimed in the immediately succeeding year. Applying that reasoning to the facts - where 50% was allowed in the year of purchase and the remaining 50% was claimed in the next year - the Tribunal held the assessee entitled to the remaining additional depreciation and reversed the CIT(A)'s finding. [Paras 6, 7, 8, 9, 10]Remaining 50% additional depreciation allowed for AY 2014-15; CIT(A)'s order reversed on this ground.Employees' contribution to Provident Fund and operation of section 36(1)(va) and non-applicability of section 43B - Confirmation of disallowance of employer's deduction for employee PF contributions deposited after statutory due date despite being paid before filing return. - HELD THAT: - The undisputed facts were that the employee contributions were deposited after the due date prescribed under the Provident Fund law but before filing the return under section 139(1). The Tribunal followed the Supreme Court's decision in Chekmate Services Pvt. Ltd., which held that where the employer fails to deposit employee PF/ESI contributions by the statutory due date, strict compliance with section 36(1)(va) is required and such sums are to be treated as the employer's income; section 43B cannot be invoked to relieve the employer. Applying that authoritative precedent to the facts, the Tribunal found no merit in the assessee's plea and confirmed the disallowance. [Paras 11]Disallowance of employees' contribution to PF confirmed.Deduction under section 80JJAA for employment of new regular workmen - Allowing the claim of deduction under section 80JJAA for the amounts corresponding to previous assessment years that were supported by the annexure to Form 10DA despite insertion of additional columns. - HELD THAT: - The Assessing Officer restricted the deduction under section 80JJAA to the current year's 30% figure on the ground that two extra columns (11 and 12) were inserted in the annexure to Form 10DA and such columns are not present in the proforma. The Tribunal observed that the audit report had in fact clarified the year-wise quantum of deduction and that the assessee's claims for the preceding assessment years had already been allowed by revenue earlier. Since the AO had accepted part of the claim (30% for the year) and only denied the carry forward amounts for a technical/formal reason, the Tribunal held that such a minor technical variation did not justify denial of legitimately eligible deductions for the prior years. Consequently, the Tribunal allowed the full claimed amounts under section 80JJAA for AYs 2013-14 and 2014-15 and reversed the CIT(A)'s finding. [Paras 13, 14, 16, 19, 20]Deductions under section 80JJAA allowed as claimed for both years; lower authorities' restriction set aside.Final Conclusion: Both appeals are partly allowed: delay in filing condoned; disallowances under section 14A deleted; balance additional depreciation allowed; disallowance of late-deposited employee PF contributions confirmed; deduction under section 80JJAA allowed as claimed for the respective assessment years. Issues Involved:1. Condonation of delay in filing appeals.2. Disallowance under Section 14A of the Income-tax Act.3. Disallowance of additional depreciation under Section 32.4. Disallowance of employees' contribution towards PF and ESI.5. Deduction under Section 80JJAA.6. Ex parte order by CIT(A).Issue-wise Detailed Analysis:1. Condonation of Delay in Filing Appeals:The appeals were time-barred by 1146 and 699 days, primarily due to COVID-19 restrictions. The Tribunal referenced the Hon'ble Supreme Court's judgment in Miscellaneous Application No. 21 of 2022, which excluded the limitation period from 15.03.2020 to 28.02.2022 for filing appeals. Consequently, the delay was condoned, and the appeals were admitted for adjudication.2. Disallowance under Section 14A:The Tribunal noted that the assessee had not earned any exempt income during the years under consideration. Citing judicial precedents, including Hon'ble Delhi High Court in Cheminvest Ltd. Vs. ITO and Hon'ble Calcutta High Court in Reliance Chemotex Industries Ltd., the Tribunal held that provisions of Section 14A cannot be invoked if no exempt income is earned. Therefore, the disallowances of Rs. 1,89,447/- and Rs. 68,280/- for AYs 2013-14 and 2014-15 were deleted, reversing the CIT(A)'s findings.3. Disallowance of Additional Depreciation under Section 32:For AY 2014-15, the assessee claimed balance 50% of additional depreciation on assets used for less than 180 days in the preceding year. The Tribunal referred to the decision in National Engineering Industrial Ltd., which allowed such claims, viewing the amendment to Section 32(1) as curative. Consequently, the Tribunal allowed the claim of Rs. 57,84,206/-, reversing the CIT(A)'s decision.4. Disallowance of Employees' Contribution towards PF and ESI:The Tribunal upheld the disallowance of Rs. 9,26,938/- for employees' contributions deposited after the due date prescribed under the relevant Act, referencing the Hon'ble Supreme Court's judgment in Chekmate Services Pvt. Ltd. Vs. CIT. The Court held that strict compliance with Section 36(1)(va) is required, and Section 43B cannot be applied to employees' contributions. Thus, the Tribunal confirmed the CIT(A)'s findings.5. Deduction under Section 80JJAA:The assessee's claim for deduction under Section 80JJAA was partly allowed by the AO but denied for previous years due to technical reasons in the Chartered Accountant's report. The Tribunal found no merit in the AO's partial acceptance of the claim, emphasizing that deductions for previous years were already allowed by the revenue. The Tribunal held that minor technical defects should not disallow legitimate claims and allowed the deductions of Rs. 1,19,33,440/- and Rs. 2,02,53,323/- for AYs 2013-14 and 2014-15, respectively, reversing the CIT(A)'s findings.6. Ex parte Order by CIT(A):The assessee contended that the CIT(A) erred in framing an ex parte order. The Tribunal did not specifically address this issue separately in the detailed analysis, implying that the primary focus was on the substantive grounds of appeal.Conclusion:The appeals were partly allowed, with significant relief granted on disallowances under Sections 14A and 80JJAA, and additional depreciation under Section 32, while upholding the disallowance of employees' contributions towards PF and ESI. The Tribunal's order was pronounced in open court.