ITAT upholds ESIC contribution disallowance for delayed remittance but allows sales incentive expenditure appeal under section 43B

ITAT Nagpur upheld disallowance of delayed ESIC contribution remittance, following SC precedent in Checkmate Services that contributions must be deposited within statutory due dates under respective Acts, not extended periods under section 43B. However, ITAT allowed appeal regarding ad-hoc disallowance of sales incentive expenditure, finding no specific defects identified by authorities and no provision empowering arbitrary percentage disallowances without establishing non-genuineness of vouchers, citing Madras HC decision requiring sample verification before disallowance.

---

---

Issues involved:
The judgment involves challenges to the assessment order passed u/s 143(3) of the Income-tax Act, 1961 for the assessment year 2014-15. The issues include disallowance of incentives paid to sales staff, delayed remittance of ESIC contribution, and interest on delayed payment of TDS.

Disallowance of ESIC Contribution:
The Appellate Tribunal upheld the disallowance of ESIC contribution made by the tax authorities. The Tribunal referred to the settled legal position established by the Hon'ble Apex Court in 'Checkmate Services' case, which stated that contributions remitted beyond the due date are not eligible for deduction. The Tribunal found the disallowance towards delayed remittance of ESIC to be in accordance with the law and dismissed the challenge against it.

Ad-hoc Disallowances - Sales Incentives:
Regarding the ad-hoc disallowance of sales incentives, the Tribunal ruled in favor of the assessee. It noted that there were no specific findings or evidence to justify the ad-hoc disallowances made by the tax authorities. The Tribunal emphasized that the expenses claimed were genuine and incurred wholly for business purposes. Citing a judgment of the Hon'ble High Court of Madras, the Tribunal highlighted the importance of establishing the genuineness of vouchers before making disallowances. As there was no clear rationale provided for the ad-hoc disallowance and no evidence of non-genuineness, the Tribunal vacated the disallowance entirely, allowing the appeal on this ground.

Conclusion:
The appeal of the assessee was partly allowed by the Appellate Tribunal. The Tribunal dismissed the challenge against the disallowance of ESIC contribution based on the legal precedent set by the Hon'ble Apex Court. However, the Tribunal ruled in favor of the assessee regarding the ad-hoc disallowance of sales incentives, emphasizing the lack of specific findings or evidence to support the disallowance. The Tribunal vacated the ad-hoc disallowance entirely, allowing the appeal on this ground.

---