2023 (6) TMI 1358

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.... National Faceless Appeal Centre has erred in making disallowance of Rs.5,44,519/- u/s 36(1)(va )r.w.s 2(24)(x) of the Income Tax Act 1961. 3. That on the facts and in the circumstances of the case and in law, the Id. CIT(A), National Faceless Appeal Centre has erred in making ad-hoc disallowance of Rs. 2,50,000/- on account of business promotion expenses. 4. The appellant craves to add, alter or delete any of the grounds of appeal during the course of appellate proceedings. 2. Succinctly stated, the assessee firm which is engaged in the business as that of a mining contractor/transporter had filed its return of income for A.Y.2014-15 on 28.11.2014, declaring an income of Rs.23,34,450/-. Case of the assessee was, thereafter, selected for scrutiny assessment u/s. 143(2) of the Act. 3. During the course of assessment proceedings, it was observed by the A.O that the assessee had delayed the deposits of employee's share of contribution towards Employee's Provident Fund (EPF) aggregating to Rs.5,44,519/-, as under: SL. MONTH AMOUNT (Rs.) 1. April, 2013 78,130/- 2. May, 2013 86,447/- 3. June, 2013 88,353/- 4.....

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.... that the addition made by the A.O u/s.36(1)(va) r.w.s. 2(24)(x) of the Act of the delayed deposit of the employees share of contribution of Rs.1,88,346/-, which was been made within the extended time period under the EPF Act, 1952, could not be sustained and was liable to be struck down. The Ld. AR in order to buttress his aforesaid contention had relied upon the judgment of the Hon'ble High Court of Bombay in the case of Pr. CIT Vs. Hind Filter Ltd. (2018) 90 taxmann.com 51 (Bom.). It was submitted by the Ld. AR that the Hon'ble High Court in its aforesaid order had, inter alia, observed that as long as the payments towards labour welfare funds (ESI before them) was made by the assessee within the grace period, the same were to be held as having been made within the period prescribed by law. 7.1. Apropos the grievance of the assessee as regards the ad-hoc disallowance of business promotion expenses amounting to Rs.2,50,000/-, it was submitted by the Ld. AR that the A.O without giving any cogent reason and pointing out any specific instance where the assessee had raised a claim for deduction of any expenditure under the aforesaid head, which was either not found to be i....

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....it an employee's contribution to the employee's account in the relevant fund under any Act, rule, order or notification issued thereunder or under any standing order, award, contract of service or otherwise." Although the assessee as an employer is obligated to credit an employee's share of contribution to the employee's account in the relevant fund under the EPF Act within 15 days from closure of every month, but as stated by the Ld. AR, and, rightly so, a further the grace period of 5 days to remit the contribution had been allowed under the said Act. The issue as to whether or not the grace period would fall within the meaning of the term "due date" as contemplated in Section 36(1)(va) of the Act, had come up before the Hon'ble High Court of Bombay in the case of Pr. CIT Vs. Hind Filter Ltd. (2018) 90 taxmann.com 51(Bom.). The Hon'ble High Court in its said aforesaid order had, inter alia, observed that payments having been made within the grace period were to be held as having been made within the period prescribed by law. For the sake of clarity, the relevant observations of the Hon'ble High Court are culled out as under: "7. In the pres....

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....mounts which are held in trust, as it is in the case of employees' contributions- which are deducted from their income. They are not part of the assessee employer's income, nor are they heads of deduction per se in the form of statutory pay out. They are others income, monies, only deemed to be income, with the object of ensuring that they are paid within the due date specified in the particular law. They have to be deposited in terms of such welfare enactments. It is upon deposit, in terms of those enactments and on or before the due dates mandated by such concerned law, that the amount which is otherwise retained, and deemed an income, is treated as a deduction. Thus, it is an essential condition for the deduction that such amounts are deposited on or before the due date." 14. Considering the facts involved in the case of the assessee before me r.w the settled position of law, I am unable to persuade myself to subscribe to the disallowance of employees share of contribution of Rs.1,88,346/- made by the A.O u/s.36(1)(va) r.w.s 2(24)(x) of the Act. Accordingly, the disallowance of Rs.1,88,346/- made by the A.O u/s.36(1)(va) r.w.s 2(24)(x) of the Act is herein vacated. ....

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.... ITAT, Kolkata in the case of Animesh Sadhu Vs. ACIT, Circle-1, Hoogly, ITA No. 11/Kol/2013, dated 12.11.2014 and that of the ITAT, Delhi in the case of ACIT, New Delhi Vs. M/s. Modi Rubber Ltd. ITA No. 1952/Del/2014, dated 15.05.2018. Also, my aforesaid view that an assessee's claim for deduction of an expenditure u/s.37 of the Act cannot be arbitrarily disallowed by the A.O on an ad-hoc basis is supported by the order of the ITAT, Raipur in the case of M/s. Sunita Finlease Limited Vs. Income Tax Officer, ITA No.244/RPR/2017 dated 30.03.2022. I am of the considered view, that a disallowance of an expenditure claimed by the assessee as a deduction as per the mandate of section 37 of the Act can only be disallowed in case of satisfaction of either of the conditions set out in the said section, viz. (i) the expenditure is in the nature of a capital expenditure or personal expenditure of the assessee; or (ii) that the expenditure had been incurred for any purpose which is an offence or which is prohibited by law. As the A.O had failed to place on record any material which would prove to the hilt that the assessee had either raised a bogus claim of expenditure; or that the said exp....