Revenue loses appeal on depreciation advance disallowance and late PF/ESI contributions under Section 139(1)

ITAT Jaipur dismissed revenue's appeal on two grounds. First, regarding disallowance of advance received against depreciation deferred, the tribunal upheld CIT(A)'s deletion following SC precedent in National Hydro Electric Power Corporation Ltd., holding that advance against depreciation cannot be added to normal income computation. Second, on disallowance of employees' PF/ESI contributions deposited beyond prescribed time limit, ITAT confirmed CIT(A)'s deletion as contributions were paid before return filing due date under Section 139(1), following Rajasthan HC decisions. Both issues decided against revenue.

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Issues Involved:

1. Deletion of disallowance on account of advance received against depreciation deferred.
2. Deletion of disallowance for depositing the employees' contribution to PF & ESI beyond the prescribed time limit.
3. Applicability of Section 43B versus Section 36(1)(va) r.w.s 2(24)(x) concerning employees' contributions to PF & ESI.

Issue-wise Detailed Analysis:

1. Deletion of Disallowance on Account of Advance Received Against Depreciation Deferred:

The Revenue challenged the action of the CIT(A) in deleting the disallowance related to advance received against depreciation deferred. The case was argued to be covered by the precedent set in the assessee's own case for the assessment year 2008-09, where the facts and circumstances were identical. The Tribunal referred to the Hon'ble Supreme Court's decision in NHPC Vs. CIT, which clarified that Advance Against Depreciation (AAD) is not a reserve but "income received in advance" and a "timing difference." The Supreme Court held that AAD is not carried through the profit and loss account and is not an appropriation of profits, thus not applicable under clause (b) of Explanation 1 to Section 115JB. The Tribunal found no infirmity in the CIT(A)'s order, which followed this Supreme Court ruling, and dismissed the Revenue's appeal on this ground.

2. Deletion of Disallowance for Depositing Employees' Contribution to PF & ESI Beyond Prescribed Time Limit:

The Revenue contested the deletion of disallowance for late deposit of employees' contributions to PF and ESI. The CIT(A) found that the contributions were paid before the due date for filing the income return under Section 139(1). The Tribunal noted that this finding was uncontroverted and upheld the CIT(A)'s decision, which relied on the Hon'ble Rajasthan High Court's rulings in Jaipur Vidyut Vitran Nigam Ltd and Udaipur Dugdh Utpadak Sahakari Sangh Ltd. The Tribunal did not find any error in the CIT(A)'s order and dismissed the Revenue's appeal on this issue.

3. Applicability of Section 43B Versus Section 36(1)(va) r.w.s 2(24)(x) Concerning Employees' Contributions to PF & ESI:

The Revenue questioned whether the CIT(A) was justified in holding that employees' contributions to PF and ESI are governed by Section 43B rather than Section 36(1)(va) read with Section 2(24)(x) of the Income Tax Act, 1961. The CIT(A) concluded that since the contributions were paid before the due date of filing the return, they should be allowed under Section 43B. The Tribunal agreed with the CIT(A)'s interpretation, consistent with the Rajasthan High Court's decisions, and dismissed the Revenue's appeal on this ground.

Conclusion:

Both appeals filed by the Revenue were dismissed, with the Tribunal upholding the CIT(A)'s decisions on all grounds. The Tribunal's judgment was pronounced in open court on 01/06/2018.

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