2024 (12) TMI 639 - AT - Income Tax

Revenue appeal dismissed on ESI/PF deposits disallowance under section 36(1)(va) following Supreme Court precedent

DCIT Circle 27 (1) New Delhi Versus United Drilling Tools Ltd.

ITAT Delhi dismissed revenue's appeal in three-part dispute. Court upheld AO's disallowance of late ESI/PF deposits under section 36(1)(va) following SC ... Disallowance of late deposit of ESI/PF u/s 36(1)(va) - HELD THAT:- As following the ratio laid down in the case of Checkmate Services [2022 (10) TMI 617 - SUPREME COURT] we allow the Ground of the Revenue and uphold the addition made by the A.O. u/s 36(1)(va). Disallowance on account of Sundry Creditors - Assessee offered the said amount for taxation in subsequent year, therefore, if the addition is reversed the same will amounts to double taxation, thus, sought for dismissal of Ground - HELD THAT:- The Assessee has written off the credit balance of both the parties under consideration during Assessment Year 2017-18 which is supported by the financials produced by the Assessee. Both the ledge accounts the amount standing in the name of both the parties reflecting as written off as on 31/03/2017. Thus, we find no error or infirmity in the order of the Ld. CIT(A) and finding no merit in Ground No. 2 of the Revenue, we dismiss Ground No. 2 of the Revenue. Disallowance of depreciation @25% on opening WDV of intellectual property rights - Assessee submitted that the scheme of Amalgamation has been approved by the Hon'ble High Court and once the scheme of amalgamation has been approved, no authority should be allowed to tinker with the scheme - HELD THAT:- For all practical purpose, the merger effectively took place in Financial Year 2013- 14 relevant to Assessment Year 2014-15 as effect of said amalgamation the assets and liabilities of M/s Macro Steel Engineers Pvt. Ltd. merged with Assessee Company. Further the assets included value of Patented Technology developed by M/s Micro Engineers Pvt. Ltd. The valuation of the said patent technology has been accepted by the Hon'ble High Court and the Assessee has declared the same as value of its asset for Financial Year 2013-14 relates to Assessment Year 2013-14 which stood accepted u/s 143(3) of the Act and no adverse observation has been drawn in the assessment proceedings. As decided in Rohit Bal Designs Pvt. Ltd.[2022 (8) TMI 1555 - ITAT DELHI] A.O has committed an error by passing assessment order based on standalone basis despite fact that he had full knowledge of amalgamation while making the addition. The Ld. A.O should have considered the effect of amalgamation more so in view of the specific mandate of the Hon'ble High Court. The Ld. A.O has ignored the above facts.the tax authorities are bound to take note of the state of affairs of the Assessee as on 01/04/2013 and a return filed reflecting the same cannot be ignored on the strength of section 139(9) of the Act. The merits otherwise on the return field have never been challenged by the A.O. Therefore, in our opinion the assessed income as per the return field by the appellant u/s 139(9) of the Act on the basis of consolidated Balance sheet should have been accepted by the A.O. It is also undisputed fact that the value of patent technology has not only been accepted by the Hon'ble High Court of Delhi but also accepted by the A.O. in scrutiny proceedings for Assessment Year 2014-15 vide order 25/10/2016. Thus, in our considered opinion, the Ld. CIT(A), committed no error in deleting the addition Appeal of revenue dismissed. Issues Involved:1. Disallowance of late deposit of ESI/PF under Section 36(1)(va) of the Income Tax Act, 1961.2. Disallowance of sundry creditors.3. Disallowance of depreciation on intellectual property rights.Issue-wise Detailed Analysis:1. Disallowance of Late Deposit of ESI/PF:The primary issue was whether the Commissioner of Income Tax (Appeals) ['Ld. CIT(A)'] erred in deleting the disallowance of Rs. 17,93,995/- for late deposit of ESI/PF made by the Assessing Officer (A.O.) under Section 36(1)(va) of the Income Tax Act, 1961. The Department argued that the Ld. CIT(A) relied on the judgment of the jurisdictional High Court in CIT vs. AMIL Limited, without considering judgments from other High Courts and a relevant CBDT Circular. However, during the appeal, the Assessee's Senior Counsel conceded that, per the Supreme Court's ruling in Checkmate Services Pvt. Ltd. vs. CIT-1, this ground should be decided against the Assessee. Consequently, the Tribunal allowed the Revenue's ground, upholding the A.O.'s addition.2. Disallowance of Sundry Creditors:The Revenue contended that the Ld. CIT(A) erred in deleting the disallowance of Rs. 19,08,698/- related to sundry creditors. The A.O. had added this amount, citing that the creditors were outstanding for over three years without confirmation or financial statements. The Assessee argued that the amounts were written off in a subsequent year, and reversing the addition would result in double taxation. The Ld. CIT(A) referenced the High Court's decision in CIT vs. Vardhman Overseas Ltd., which held that mere non-payment over time does not imply cessation of liability. The Tribunal found no error in the Ld. CIT(A)'s decision, noting that the Assessee had written off the credit balance in the subsequent year, and dismissed the Revenue's ground.3. Disallowance of Depreciation on Intellectual Property Rights:The issue was whether the Ld. CIT(A) erred in deleting the disallowance of depreciation of Rs. 5,48,77,532/- on intellectual property rights. The Revenue argued that the Ld. CIT(A) wrongly deleted the addition, while the Assessee maintained that the scheme of amalgamation, approved by the High Court, included the valuation of the assets, which should not be questioned by the Revenue. The Ld. CIT(A) observed that the scheme of amalgamation was sanctioned by the High Court, and the valuation of the assets was accepted in prior assessment proceedings. The Tribunal noted that the value of the patented technology was accepted by both the High Court and the A.O. in previous assessments. Citing precedents, the Tribunal found no merit in the Revenue's arguments and upheld the Ld. CIT(A)'s decision to allow the depreciation claim.Conclusion:The Tribunal allowed the Revenue's appeal regarding the late deposit of ESI/PF but dismissed the grounds concerning sundry creditors and depreciation on intellectual property rights. The appeal filed by the Revenue was dismissed, except for the issue of late deposit of ESI/PF, which was decided in favor of the Revenue.