2017 (3) TMI 1928 - AT - Income Tax

Disallowance u/s 2(24)(X) r.w. Section 36(1)(va) - late payment of employees contribution to PF and ESI - HELD THAT - As assessee had deposited the employees contribution to PF and ESI beyond the due date prescribed in the relevant Act but the same were duly remitted by the assessee before the due date of filing of return of income u/s 139(1) of the Act and accordingly CIT(A) by following the decision of M/s. Vijay Shree Ltd 2011 (9) TMI 30 - CALCUTTA HIGH COURT held CIT(A) has failed to appreciate the fact that the assessee is not entitled to deduction of the employees contribution to provident fund ESI which was paid after the due date as specified in Explanation to section 36(1)(va) of the Act as section 43B cannot be pressed into service because section 43B comes into play only when a deduction is otherwise allowable under the Income-tax Act. Decided in favour of assessee. Disallowance u/s 14A r.w. Rule 8D - AO applied the provisions of second and third limb of the Rule 8D(2) of the Rules and made the disallowance - CIT(A) deleted the disallowance - HELD THAT - The issue in dispute is covered by the decision of this Tribunal in the assessee own case which has been subsequently approved by the Hon ble Calcutta High Court M/S. REI. AGRO LTD. 2014 (4) TMI 713 - CALCUTTA HIGH COURT - CIT(A) had rightly followed the said decision while directing the Ld. AO to re-compute the disallowance. Hence we do not find any infirmity in the order of the Ld. CIT(A) in this regard. Accordingly the grounds raised by the Revenue in this regard is dismissed for both the assessment years. Appeals of the Revenue are dismissed.

Summary

Issues:
1. Disallowance of employees' contribution to PF and ESI under Section 2(24)(X) r.w. Section 36(1)(va) of the Income Tax Act.
2. Disallowance made under Section 14A of the Act r.w. Rule 8D of the Income Tax Rules.

Issue 1: Disallowance of employees' contribution to PF and ESI:
The appeal involved the question of whether the disallowance of employees' contribution to PF and ESI under Section 2(24)(X) r.w. Section 36(1)(va) of the Income Tax Act was justified. The Revenue contended that the contributions made after the due date were not eligible for deduction. However, the Ld. CIT(A) upheld the disallowance based on a decision of the Jurisdictional High Court. The Tribunal, after hearing arguments, found that the issue was indeed covered by the High Court's decision. Consequently, the Tribunal upheld the order of the Ld. CIT(A) in this regard, dismissing the Revenue's appeal for both assessment years.

Issue 2: Disallowance under Section 14A of the Act:
The second issue pertained to the disallowance made under Section 14A of the Act r.w. Rule 8D of the Income Tax Rules. The Ld. AO disallowed a significant amount based on Rule 8D(2), despite the assessee offering a lower disallowance. The Ld. CIT(A) disagreed with the AO's approach and directed a recalculation considering only investments yielding exempt income. The Revenue challenged this decision, arguing that the AO's calculation should prevail. The Tribunal noted that the issue was settled in the assessee's favor by a previous Tribunal decision upheld by the High Court. Therefore, the Tribunal upheld the Ld. CIT(A)'s order, dismissing the Revenue's appeal for both assessment years.

In conclusion, the Appellate Tribunal ITAT Kolkata dealt with two main issues in this judgment. Firstly, it addressed the disallowance of employees' contribution to PF and ESI under specific sections of the Income Tax Act, ultimately upholding the decision of the Ld. CIT(A) based on a previous High Court ruling. Secondly, the Tribunal examined the disallowance under Section 14A of the Act, where it affirmed the Ld. CIT(A)'s directive to recalculate the disallowance based on investments yielding exempt income. The Tribunal found both issues in favor of the assessee, dismissing the Revenue's appeals for both assessment years.