2025 (9) TMI 779 - AT - Income Tax

One-day PF delay due to bank failure not attributable; disallowance deleted s.36(1)(va); s.115JB, s.80IA, s.32(1)(ii) rulings favor taxpayer

ITAT Jaipur held that a one-day delay in PF deposit due to bank website failure was not attributable to the assessee and deleted the disallowance under ... Disallowance u/s 36(1)(va) - delayed contribution to Provident Fund by 1 day due to technical issue in the website of State Bank of India (SBI) which was not attributable to the appellant - HELD THAT:- In the present case, the appellant had no intent in withholding such payment and had made the payment of employees contribution towards PF within the stipulated timelines. However, the receipt could not be effected due to website failure which was beyond the control of the appellant. Hence, the said delay not attributable to the assessee-appellant cannot be considered as a delay for the purpose of Sec. 36(1)(va) of the Act. As is evident from the record that the delay in deposit of aforesaid employee’s contribution towards PF was not on account of failure of the assessee-appellant, but was attributable to technical hitch at bank’s end. Therefore, it would be too harsh to fasten the assessee-appellant with such liability that too on account of delay by one day which is otherwise also attributable to fault of website of bank. Since the assessee-appellant had made best efforts to make the aforesaid payment within due date, employee’s contribution towards PF should be construed to be paid within due date as prescribed u/s 36(1)(va) of the Act and deduction in respect to same ought to be granted to the assessee-appellant. Based on these observations and discussion we thus set aside the order of the CIT(A) on this issue and direct the ld. AO to delete the disallowance made on account of delay in deposit of Employee’s contribution to Provident Fund u/s 36(1)(va) while computing Total Income. Resultantly, ground no 1 as raised by the appellant is therefore allowed. MAT computation - disallowance of Health and Education cess while computing Book Profit u/s 115JB - HELD THAT:- The term 'tax' shall include and shall be deemed to have always included any surcharge or cess, by whatever name called, on such tax, applies exclusively for the purposes of Section 40(a)(ii) and cannot be construed as a general definition or extended to other provisions of the Act i.e Section 115JB of the Act. Based on these overall arguments he submitted that in the absence of specific legislative mandate in Explanation 2 to Section 115JB, 'Health and Education Cess' cannot be equated with 'income-tax' for the purpose of computing book profits, and therefore, no addition on this account can be sustained u/s 115JB. Accordingly, the disallowance made by the AO and confirmed by the CIT(A) in respect of Health and Education Cess is hereby directed to be deleted. Inclusion of Reliability charge of Rs. 1.50 per unit in computing Transfer Price of Power for the purpose of deduction u/s 80IA - We direct the ld. AO for inclusion of Reliability charge of Rs. 1.5/unit while computing Transfer Price for Power undertakings u/s 80IA of the Act for the year under consideration as well. Accordingly, we consider the additional ground no. 1 raised by the assessee – appellant is therefore, allowed. Allowance of claim of deduction u/s 80IA on account of Solid Waste Management System [SWMS] - whether Solid Waste Management System of the appellant is an eligible Infrastructure Facility as per provision of section 80IA of the Act or not? - HELD THAT:- We have summarized herein above, in our considered view, the solid waste management system as set up by the appellant satisfies all the conditions as provided in section 80IA(4) read with clause (c) of the Explanation to the said section and is thus eligible for deduction under section 80IA(1) of the Act. In the light of this discussion we direct the ld. AO to allow deduction u/s 80IA on account of the solid waste management system (fly ash) as stated above, following our decision in earlier year & by following PSM method & based on FAR of 79.73%. Based on the above finding of facts, additional ground no. 2 raised by the assessee – appellant is allowed. Allowability of the claim of depreciation on leasehold rights u/s 32(1)(ii) - Since the claim of depreciation on leasehold right acquired in said years has been allowed by this Tribunal, we find that in all fairness, depreciation on written down value of such leasehold rights should also be allowed to the appellant in the year under consideration as well. Hence, ld. AO is directed to grant depreciation on such leasehold rights in accordance with the provision of section 32(1)(ii) of the Act not only on expenditure incurred during the year under consideration but also on opening written down value of such assets already allowed by this Tribunal in earlier years after due verification of all such workings. Accordingly, the additional ground no. 4 raised by the assessee-appellant is allowed. Allowability of claim of deduction u/s 80IA and 80IC while computing Book Profit under section 115JB -whether the deduction available to the appellant u/s 80IA & 80IC under the normal computation of total income, should also be reduced from the computation of book profit u/s 115JB of the Act? - HELD THAT:- AO is directed to grant deduction u/s 80IA/80IC as allowed in the aforesaid paras while computing Book Profit u/s 115JB. Benefit of indexed cost of acquisition is applicable to appellant while computing capital gain for the purpose of computing book profit u/s 115JB. ISSUES PRESENTED AND CONSIDERED 1. Whether the Appellate Tribunal should admit additional grounds raised for the first time on appeal where facts are on record and the questions are predominantly legal. 2. Whether employers' deduction under section 36(1)(va) is disallowable where employees' statutory contributions (PF/ESI) were credited to the recipient one day after the statutory due date because of a technical failure of the payment platform/bank. 3. Whether 'Health and Education Cess' (introduced by the Finance Act 2018) must be added back to book profit for computing tax under section 115JB where Explanation 2 to that section expressly refers only to earlier education cesses. 4. Whether a reliability charge (Rs.1.50/unit) for captive long-term uninterrupted power supply must be included in the arm's-length transfer price for computing deduction under section 80IA. 5. Whether deduction under section 80IA for Solid Waste Management Systems (SWMS/fly ash) is allowable and, if so, whether Profit-Split Method (PSM) and a specified FAR split may be applied to quantify the deduction. 6. Whether state/central incentives and subsidies granted as 'rewards' are capital receipts (not taxable) or fall within the amended definition of 'income' (and thus taxable), including for computation of book profit under section 115JB. 7. Whether premium/consideration paid for acquisition of leasehold rights in land is an intangible 'business or commercial right' eligible for depreciation under section 32(1)(ii). 8. Whether deductions available under sections 80IA/80IC (tax-holiday provisions) should be reduced from book profit while computing tax under section 115JB. 9. Whether indexation/grandfathering benefits under capital-gains provisions must be given effect to when computing book profit under section 115JB (i.e., whether capital gains rules apply for book-profit computation). ISSUE-WISE DETAILED ANALYSIS Issue 1 - Admission of additional grounds Legal framework: The Tribunal has discretion to admit additional grounds where the grounds raise questions of law and the facts necessary for adjudication are already on the record; admission is appropriate where grounds are bona fide and could not reasonably have been raised earlier. Precedent treatment: The Tribunal relied on established higher-court authorities recognising its power to entertain additional legal grounds in order to correctly determine tax liability. Interpretation and reasoning: The Tribunal examined whether the additional grounds were purely legal and whether supporting facts existed on the record. It found the added grounds concerned legal questions based on facts already in assessment records (e.g., TP documentation, audits, statutory filings) and some grounds were covered by earlier decisions of the same Tribunal. Ratio vs. Obiter: Ratio - additional legal grounds were admitted where no fresh factual investigation was required and the grounds affected correct tax computation; Obiter - general guidance about exercising discretion cautiously. Conclusion: The Tribunal admitted the additional grounds for consideration on merits. Issue 2 - Disallowance under section 36(1)(va) for delayed deposit of employees' contributions Legal framework: Section 36(1)(va) disallows deduction for employees' contributions to PF/ESI if not remitted within the statutory due dates under the respective welfare statutes; judicial authority of highest court affirming that employees' contribution timeliness is measured by the statutory due date under the welfare law. Precedent treatment: The Tribunal acknowledged the apex-court ruling that employee contributions must be remitted by the due date under the PF/ESI statutes to claim deduction; however, tribunals and some courts have recognised exceptions where delay arises from impossibility (e.g., technical platform failure) and not the employer's default. Interpretation and reasoning: On facts, the assessee initiated payment within the due date but the recipient bank/platform failed, resulting in credit a day late; bank acknowledgment and contemporaneous evidence showed payment was processed in time by the payer. The Tribunal applied the doctrine of impossibility/absence of fault and relied on coordinate decisions where technical failure of the online payment mechanism justified treating the payment as timely. Ratio vs. Obiter: Ratio - where a taxpayer has taken all reasonable steps and payment could not be completed because of technical failure attributable to the payee/bank, the delay will not attract disallowance under section 36(1)(va); Obiter - careful distinction that ordinary late payments attributable to the employer remain disallowable following higher court authority. Conclusion: Disallowance was set aside; employee contributions were treated as timely where bank/portal failure prevented credit within the statutory date and the taxpayer had taken due steps before the due date. Issue 3 - Add-back of Health and Education Cess under section 115JB Legal framework: Section 115JB requires book profit to be increased by 'amount of income-tax' (Explanation 1(a)); Explanation 2 lists components to be treated as 'income-tax' for that purpose and explicitly mentions earlier education cesses and surcharge. Precedent treatment: Authorities have held that statutory language controls; taxes/charges not expressly included in Explanation 2 are not to be read-in by judicial gloss; appellate decisions have excluded other levies (wealth tax, fringe benefit tax) where Explanation did not include them. Interpretation and reasoning: The Tribunal undertook literal interpretation: Explanation 2 expressly enumerates prior education cesses but does not mention the later Health & Education Cess introduced by subsequent finance legislation. Applying the rule against reading words into a taxing provision and the proposition that courts cannot legislate omissions, the Tribunal held that the newer cess does not automatically form part of 'income-tax' for 115JB unless Explanation 2 is specifically amended. The intention/memoranda of finance bills do not supply the omitted statutory text. Ratio vs. Obiter: Ratio - Health & Education Cess is not to be added back under section 115JB unless Explanation 2 is expressly amended to include it; Obiter - commentary on constitutional/legislative history and distinctions with other provisions where deeming clauses were inserted. Conclusion: The addition of Health & Education Cess to book profit under section 115JB was disallowed; the cess is not part of 'income-tax' for that section absent express statutory amendment. Issue 4 - Inclusion of reliability charge in transfer price for section 80IA deduction Legal framework: Section 80IA(8) read with transfer-pricing provisions requires arm's-length valuation of intra-group transfers; comparable uncontrolled price or appropriate TP methods must reflect all relevant components of consideration for long-term exclusive/uninterrupted supply. Precedent treatment: The Tribunal relied on prior co-ordinate bench decisions that allowed inclusion of reliability or premium components where captive plants provide uninterrupted/exclusive supply and incur specific capital/exclusivity costs; PSM or other methodologies have been accepted where functional realities justify adjustment. Interpretation and reasoning: On facts the captive power plants had significant exclusive capex and provided long-term uninterrupted supply to manufacturing units; regulatory orders in other jurisdictions recognising reliability charges supported the commercial justification. The Tribunal held that arm's-length price for such exclusive/uninterrupted supply may legitimately include a reliability component and that the specific Rs.1.50/unit reliability charge should be included. Ratio vs. Obiter: Ratio - reliability charge forming part of transfer price can be allowed where contractual/operational exclusivity and uninterrupted supply justify a separate reliability premium; Obiter - procedural observations on admission of the additional ground. Conclusion: Reliability charge of Rs.1.50/unit was to be included in the transfer price for section 80IA deduction for the year under consideration. Issue 5 - Allowability and quantification of section 80IA deduction for SWMS (fly ash) Legal framework: Section 80IA grants tax holiday for specified infrastructure facilities including solid waste management systems; conditions include ownership, agreement with government/local authority/statutory body and commencement dates. Transfer-pricing principles apply where interlinked functions exist between SWMS and other business units. Precedent treatment: The Tribunal referred to prior assessment and appellate records where the eligible nature of SWMS and methodology (profit-split) were considered; tribunals have accepted that treated fly ash can be a substitute for clinker and that revenue may be attributed by FAR analysis rather than assuming all profit accrues to SWMS. Interpretation and reasoning: The Tribunal analysed statutory conditions (agreement with local authority, commencement, independent functions) and factual material (survey videography, audited Form 10CCB, FAR analyses, prior TP/TPO findings). It rejected revenue's post-survey contentions as not presenting new credible facts and held (i) fly ash/pond ash are solid waste for purposes of 80IA, (ii) agreements with gram panchayats qualify as agreements with local authority, (iii) the restriction against splitting up/reconstruction does not apply to SWMS category, and (iv) PSM with the previously adopted FAR split (approx. 79.73%) is appropriate for quantification. Ratio vs. Obiter: Ratio - where statutory conditions are met and the facts demonstrate an independent SWMS function (collection, treatment, transport, disposal), SWMS qualifies for section 80IA relief and PSM/FAR may be applied for quantification; Obiter - criticisms of revenue's survey-based challenges and procedural observations. Conclusion: Deduction under section 80IA for SWMS (fly ash) was allowable; the Tribunal directed allowance quantified by PSM subject to the FAR split applied in prior years. Issue 6 - Taxability of government incentives: capital receipt vs. income (section 2(24)(xviii) amendment) Legal framework: Historically, characterisation of incentives/subsidies depends on nature and purpose (capital vs. revenue); the Act was later amended to include specified forms of 'assistance' within the definition of 'income' by a deeming clause, with limited exceptions. Precedent treatment: The Tribunal examined conflicting authorities: benches and high courts have in various contexts treated incentives as capital receipts (when granted as 'rewards' for capital formation/expansion), while subsequent higher-court rulings and a High Court decision on constitutional validity of the amendment support taxation of certain subsidies post-amendment. Interpretation and reasoning: The Tribunal found that the question is primarily legal and fact-sensitive (nature, year of grant, whether incentives were granted/approved/received). It distinguished cases where the amendment applied (post-amendment receipts) from historical claims predating the legislative change. The Tribunal noted that the amendment broadened 'income' to include assistance; where incentives were pre-amendment, or their nature was plainly a reward/capital assistance, established precedents could still carry weight. However, the Tribunal concluded that in the present assessment year (post-amendment context) and on the authorities considered, the legislative amendment and judicial interpretation required treating such assistance as taxable unless specific exceptions applied. Ratio vs. Obiter: Ratio - where statutory definition of 'income' was amended to include assistance, such incentives fall within taxable income subject to exceptions; Obiter - analysis of 'reward' versus 'assistance' and transitional/temporal distinctions. Conclusion: The Tribunal upheld the lower authority's disallowance on this issue for the year considered; incentives characterised as assistance under the amended definition were taxable and could be included for book-profit calculation unless an exclusion applied or the incentive pertained to pre-amendment circumstances where established precedent and exceptions operate. Issue 7 - Depreciation on leasehold rights under section 32(1)(ii) Legal framework: Section 32(1)(ii) allows depreciation on 'business or commercial rights' (intangible assets) used for business. Precedent treatment: Several tribunal and high-court decisions have recognised that premium paid to acquire leasehold/lease rights (where the lessee acquires an exclusive business/commercial right for a period) constitutes an intangible asset eligible for depreciation; some contrary decisions were distinguished on facts and by higher court pronouncements. Interpretation and reasoning: The Tribunal accepted that premium/payment for leasehold rights confers a time-limited commercial right (license) distinct from ownership of land; relevant facts (capitalisation in books, audited disclosures, prior tribunal rulings in earlier years) were on record. The Tribunal followed co-ordinate bench and higher-court authorities that such leasehold rights qualify as depreciable intangible assets and directed depreciation at applicable rates, including on opening WDV where previously allowed. Ratio vs. Obiter: Ratio - leasehold premium/consideration for acquiring business/commercial rights is an intangible asset eligible for depreciation under section 32(1)(ii); Obiter - procedural comments about admission of the ground and earlier decisions. Conclusion: Depreciation on leasehold rights was allowed at the statutory rate and earlier WDV carried forward was to be given effect. Issue 8 - Allowing section 80IA/80IC deductions while computing book profit under section 115JB Legal framework: Section 115JB(5) provides that, save as otherwise provided in the section, all other provisions of the Act apply for computation of deemed total income; the interpretive question is whether tax-holiday deductions under Chapter VI-A must be disregarded for MAT/book-profit computation. Precedent treatment: Several high-court and tribunal decisions have held that special provisions (deductions/exemptions) that operate under the Act continue to have effect for book-profit computation unless section 115JB expressly excludes them; courts have applied the specific-over-general principle to permit application of other provisions under 115JB(5). Interpretation and reasoning: The Tribunal followed authority holding that section 115JB(5) opens the field to other provisions; Chapter VI-A tax-holiday deductions are specific statutory permissions and, absent an express bar in section 115JB, should reduce book profit in the manner provided by those provisions. Consistency and settled precedents in the assessee's prior years reinforced this outcome. Ratio vs. Obiter: Ratio - deductions under sections 80IA/80IC may be allowed in computing book profit under section 115JB in the absence of an express statutory bar; Obiter - policy remarks on tax-holiday intent and non-application of MAT to income specifically exempted by statute. Conclusion: The Tribunal directed that section 80IA/80IC deductions, as allowable under normal provisions, be reduced from book profit for section 115JB computation (subject to quantification and verification). Issue 9 - Indexation benefit for capital gains in computation of book profit under section 115JB Legal framework: Section 115JB(5) permits application of other provisions of the Act unless specifically barred; capital-gains computation provisions (sections 45, 48, 112/112A, etc.) provide for indexation/grandfathering which affect taxable gains/losses. Precedent treatment: High-court and tribunal authorities have held that indexation/grandfathering for capital gains must be allowed in book-profit computation because section 115JB(5) opens application of specific provisions (capital-gains rules) unless expressly excluded. Interpretation and reasoning: Applying the specific-over-general principle and earlier authorities, the Tribunal held that capital-gains computations (including indexation or grandfathering) determine the real gain/loss and must be taken into account when adjusting book profit under section 115JB; ignoring indexation would tax a notional/book entry rather than actual economic gain. Ratio vs. Obiter: Ratio - indexed cost/grandfathering benefits under capital-gains provisions are to be given effect in computing book profit under section 115JB; Obiter - references to policy and equitable taxation of real income only. Conclusion: Indexation benefit (and resulting adjusted long-term capital loss/gain) must be reflected in book-profit computation under section 115JB; the Tribunal allowed the indexation relief claimed, subject to verification.