2011 (4) TMI 730 - AT - Income Tax

Deduction under section 80-IB - Disallowance - under section 2(24)(x) read with section 36(va)- employees contribution to PF was not deposited within due date - employees contribution to PF which assessee has to collect from its employees and to deposit with the PF authorities within the due date prescribed. In case this is not paid within the due dates the same will be disallowed. Here before us the issue is not whether it is to be allowed in view of the payment made within the due date or within the due date of filing of return but the issue is whether this amount disallowed the assessee is eligible for deduction under section 80-IB of the Act or not. We are of the considered view that this is not an item of manufacturing account or P&L Account and it is neither a profit from eligible business nor a disallowance of expenditure pertaining to the assessee s eligible business. Hence the deduction under section 80-IB(1) of the Act cannot be allowed. Hence this issue of the revenue s appeal is allowed Disallowance of contract payments under section 194C - Under section 40(a)(ia) as tax was not deducted at source - TDS deducted is not deposited before the expiry of time prescribed under section 200(1) of the Act thereby Assessing Officer disallowed by invoking provisions of section 40(a)(ia) of the Act - find that these contract payments are part of Profit and Loss Account and expenditure is disallowed by Assessing Officer in the absence of non-deposit of TDS within the due date - It is to be mentioned that neither the Assessing Officer nor CIT(A) has discussed why this item is not eligible for deduction under section 80-IB or why it is eligible - let the Assessing Officer consider this issue in the light of the allowance of deduction of this expenditure as the assessee has made payment of this TDS within the due date of filing of return of income and in case the assessee is not allowed deduction of this expenditure by invoking the provisions of section 40(a)(ia) of the Act he will go into the eligibility of deduction under section 80-IB of the Act. Hence this issue of the revenue s appeal is set aside to the file of the Assessing Officer.

Summary

Issues Involved:
1. Deduction under section 80-IB of the Income-tax Act on delayed payment of employees' contribution to Provident Fund.
2. Deduction under section 80-IB of the Income-tax Act on contract payments where TDS payment was delayed.

Issue-wise Detailed Analysis:

1. Deduction under section 80-IB on delayed payment of employees' contribution to Provident Fund:

The primary issue revolves around whether the delayed payment of employees' contribution to the Provident Fund (PF) qualifies for deduction under section 80-IB of the Income-tax Act. The assessment noted that payments towards employees' contribution to PF were delayed and thus disallowed under section 2(24)(x) read with section 36(va) of the Act. The CIT(A) allowed the deduction under section 80-IB on the basis that the disallowance resulted in an increase in business profits, which should be eligible for the deduction.

Upon review, it was determined that employees' contribution to PF is not part of the Profit & Loss Account and does not constitute profits derived from eligible business activities. It is merely a deduction allowed if contributions are made within the due dates. Since the contribution was not deposited within the due dates, it does not qualify as a business profit or an expenditure related to the Profit & Loss Account, and thus, cannot be considered for deduction under section 80-IB. Consequently, the revenue's appeal on this issue is allowed.

2. Deduction under section 80-IB on contract payments where TDS payment was delayed:

The second issue concerns the disallowance of contract payments under section 40(a)(ia) due to delayed TDS payments. The Assessing Officer disallowed these payments because the TDS was not deposited within the prescribed time under section 200(1) of the Act. The CIT(A) allowed the deduction under section 80-IB, arguing that the disallowance increased the business profits, which should be eligible for the deduction.

It was noted that these contract payments are part of the Profit & Loss Account and the disallowance was due to non-deposit of TDS within the due dates. The review indicated that the TDS payments were made within the due date of filing the return of income. Therefore, the Assessing Officer should reconsider this issue in light of the fact that the TDS payments were made within the due date of filing the return. If the expenditure is not allowed under section 40(a)(ia), the eligibility for deduction under section 80-IB should be re-evaluated. Consequently, this issue is set aside to the file of the Assessing Officer for reconsideration.

Conclusion:

The appeal by revenue is partly allowed for statistical purposes. The deduction under section 80-IB for delayed employees' contribution to PF is disallowed, while the issue of contract payments disallowed under section 40(a)(ia) is remanded back to the Assessing Officer for further consideration.