2023 (2) TMI 1414 - AT - Income Tax

Section 68 Loan Repayment Deemed Genuine; Section 36(1)(va) Disallowance Remanded for PF/ESI Verification

Balaji Solutions Limited Versus Assistant Commissioner of Income Tax Circle-2 (1), Kolkata

The ITAT Kolkata reversed the CIT(A) and deleted the addition under section 68, holding that the interest-bearing loan taken and repaid within the same ... Unexplained cash credit u/s 68 - Loan taken - HELD THAT:- Loan was interest-bearing loan taken through normal banking channel and was repaid back in the same financial year through banking channel and tax at source has been deducted on the interest paid thereon and all the documentary evidence in order to explain alleged credit has been duly placed before the lower authorities. Since no specific discrepancy has been observed by the lower authorities and the said loan being taken and repaid during the year itself and also considering the income of Rs. 15.10 crores offered by the assessee, we do not find any reason to question the genuineness of the said loan. We, therefore, reverse the finding of the ld. CIT(Appeals) and delete the addition u/s 68. Disallowance u/s 36(1)(va) - delay in the payment of employees’ contribution for various funds - HELD THAT:- The amount has been deposited on or before the due date of payment except few, which are beyond the due date. Recently in case Checkmate Services Pvt. Limited [2022 (10) TMI 617 - SUPREME COURT (LB)] has held that if employees contribution towards P.F. and ESI are deposited after the due date prescribed under the Act, the same shall be disallowed and added to the income of the assessee. This issue needs to be restored to the file of AO for necessary verification and examination of the facts for which the assessee shall file the copies of treasury challan for proving the deposit of P.F. and ESI as mentioned in the sheet extracted supra and in case AO found that the same has been deposited on or before the due date as prescribed under the PF & ESI Act, then no disallowance is called for, and in case it is found that it is deposited after the due date (considering the grace period as provided under the respective Act governing P.F. and ESI), then the same shall be disallowed as per the ratio laid down by the Hon’ble Apex Court. Thus ground no. 3 raised by the assessee is allowed for statistical purposes. 1. ISSUES PRESENTED and CONSIDERED Whether the order under section 143(3) of the Income Tax Act was passed without proper appreciation of facts and without providing a proper opportunity of hearing, thereby violating the principles of natural justice. Whether an addition of Rs. 25,00,000/- as unexplained cash credit under section 68 of the Income Tax Act was justified, considering the loan was interest-bearing, taken and repaid through banking channels within the same financial year, with TDS deducted on interest payments. Whether disallowance of Rs. 2,86,814/- under section 36(1)(va) of the Income Tax Act on account of delay in deposit of employees' contribution towards Provident Fund (PF) and Employees' State Insurance (ESI) was justified, given that payments were made within the due date of filing the return under section 139(1) and the delay was due to technical glitches in the PF/ESI portal. Applicability of the Finance Act, 2021 amendment to assessment year 2017-18 concerning disallowance under section 36(1)(va). 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Alleged violation of natural justice in passing the assessment order Legal framework and precedents: The principles of natural justice require that a person affected by a decision must be given a fair opportunity to present their case before adverse action is taken. Court's interpretation and reasoning: The ground alleging violation of natural justice was general in nature and not supported by specific facts or evidence. The Tribunal found no material to establish that the assessee was denied a proper opportunity of hearing or that the facts were not appreciated. Conclusion: No adjudication was necessary on this ground; the allegation of violation of natural justice was rejected. Issue 2: Addition under section 68 for unexplained cash credit of Rs. 25,00,000/- Relevant legal framework and precedents: Section 68 of the Income Tax Act allows the Assessing Officer to treat credits as unexplained if the assessee fails to satisfactorily explain the nature and source of such credits. The genuineness of loans taken through banking channels, interest-bearing nature, repayment within the same financial year, and deduction of TDS on interest are relevant factors in establishing genuineness. Court's interpretation and reasoning: The loan was taken from a third party through banking channels, was interest-bearing, and repaid within the same financial year through banking channels. TDS was deducted on the interest payments. The assessee furnished all documentary evidence to explain the credit. No specific discrepancies were found by the lower authorities. Considering the substantial declared income of Rs. 15.10 crores, the Tribunal found no reason to doubt the genuineness of the loan. Key evidence and findings: Documentary proof of loan transaction, interest payment with TDS, and repayment through banking channels. Application of law to facts: Since the loan was properly documented, interest-bearing, and repaid timely, it did not qualify as unexplained cash credit under section 68. Treatment of competing arguments: The Revenue's addition was based on treating the loan as unexplained credit; the Tribunal rejected this on the basis of evidence and legal principles. Conclusion: The addition of Rs. 25,00,000/- under section 68 was deleted; the ground was allowed in favor of the assessee. Issue 3: Disallowance under section 36(1)(va) for delay in deposit of employees' contribution towards PF and ESI Relevant legal framework and precedents: Section 36(1)(va) disallows deduction for employer's contribution towards PF and ESI if employee's contribution is not deposited within the due date prescribed under the respective Acts. The Supreme Court has held that delay beyond the prescribed due date results in disallowance. However, payment within the due date of filing return under section 139(1) was earlier considered sufficient for deduction. The Finance Act, 2021 amendment clarifies the due date requirement but is not applicable retrospectively to AY 2017-18. Court's interpretation and reasoning: The assessee submitted a detailed chart showing most employee contributions were deposited on or before the due date, with some exceptions. The Tribunal noted the recent Supreme Court ruling that contributions deposited after the due date prescribed under the PF/ESI Acts are to be disallowed. However, since the issue required verification of actual dates of deposit, the Tribunal restored the matter to the Assessing Officer for re-examination. Key evidence and findings: Chart of deposit dates, submissions regarding technical glitches causing delay, and reference to Supreme Court precedent. Application of law to facts: The Tribunal directed the Assessing Officer to verify treasury challans and ascertain whether deposits were made within the due dates under the PF and ESI laws (including any grace period). Deduction to be allowed if deposits were timely; disallowance only if deposits were late as per statutory due dates. Treatment of competing arguments: The assessee argued payments were timely or delayed due to technical glitches; the Revenue relied on strict adherence to due dates. The Tribunal balanced these by ordering factual verification. Conclusion: The disallowance under section 36(1)(va) was set aside for statistical purposes and remanded for fresh verification and decision by the Assessing Officer. Issue 4: Applicability of Finance Act, 2021 amendment to AY 2017-18 Legal framework: The amendment clarifies that employee's contribution must be deposited within the due date prescribed under PF/ESI laws to claim deduction. The amendment is prospective and does not apply to AY 2017-18. Court's interpretation and reasoning: The Tribunal explicitly noted the amendment is not applicable for the assessment year under consideration. Conclusion: The amendment does not affect the present case.