2023 (6) TMI 1431 - AT - Income Tax

Late PF ESI deposits disallowed under section 36(1)(va) but club expenses allowed under section 37

M/s. Ansal Housing Ltd. Versus DCIT CPC, Bengaluru

M/s. Ansal Housing Ltd. Versus DCIT CPC, Bengaluru - TMI Issues Involved:1. Adjustment under Section 36(1)(va) of the Income Tax Act for delayed deposit of PF/ESI.2. Disallowance of club expenses under Section 37 of the Income Tax Act.Detailed Analysis:1. Adjustment under Section 36(1)(va) of the Income Tax Act for delayed deposit of PF/ESI:Facts and Arguments:- The assessee filed a return declaring a loss, which was adjusted by the AO, including a disallowance of Rs. 1,23,57,656/- due to delayed deposit of PF/ESI.- The assessee argued that the deposit was made before the due date of filing the return under Section 139(1) of the Act, thus should be allowable.- The assessee cited decisions from the Bombay Tribunal and Delhi ITAT to support that the issue is debatable and should not be adjusted under Section 143(1).Revenue's Stand:- The Revenue supported the AO's adjustment, citing the Supreme Court decision in Checkmate Services Pvt. Ltd. vs. CIT, which held that the deduction under Section 36(1)(va) is allowable only if the deposit is made within the due date under the respective Acts.Tribunal's Findings:- The Tribunal referred to the Supreme Court decision in Checkmate Services Pvt. Ltd., which clarified that the employees' contribution to PF/ESI must be deposited before the due date under the respective Acts for the deduction to be allowed.- The Tribunal also referred to the Pune Bench decision in Cemetile Industries, which upheld similar disallowances under Section 143(1).- The Tribunal concluded that the adjustment made by the AO under Section 143(1) was justified, as the delayed deposit of PF/ESI contributions was clearly indicated in the audit report, which falls within the purview of Section 143(1)(a)(iv).Conclusion:- The Tribunal upheld the disallowance of Rs. 1,23,57,656/- for delayed deposit of PF/ESI, dismissing the assessee's ground.2. Disallowance of club expenses under Section 37 of the Income Tax Act:Facts and Arguments:- The assessee incurred club expenses of Rs. 3,43,817/- and claimed them as business expenses under Section 37.- The tax auditor reported these expenses in the audit report but did not explicitly state they were disallowable.- The assessee argued that these expenses were allowable and had been allowed in previous scrutiny assessments.Revenue's Stand:- The Revenue supported the disallowance based on the audit report's indication of these expenses.Tribunal's Findings:- The Tribunal noted that Section 143(1)(a)(iv) allows adjustments for disallowance of expenditure indicated in the audit report but not taken into account in computing total income.- The Tribunal found that the tax auditor had merely detailed the club expenses without indicating they were disallowable.- The Tribunal concluded that the AO's adjustment was not justified as the audit report did not explicitly state the expenses were disallowable.Conclusion:- The Tribunal set aside the disallowance of Rs. 3,43,817/- for club expenses, allowing the assessee's ground.Final Decision:- The appeal of the assessee was partly allowed: the disallowance under Section 36(1)(va) was upheld, while the disallowance of club expenses under Section 37 was set aside.