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2019 (7) TMI 360

HELD THAT:- In the instant case though the assessee was not under contractual obligation but the assessee was severally liable for the compliances of the provisions of Employees Provident Fund and Miscellaneous Provisions Act, 1952 and the scheme framed under the said Act. Further, the assessee as part of good corporate governance complied with the provisions of beneficial legislature qua the contract labourers who were working for the assessee. The rendering of service and payments have not been doubted by the Department. The payments were wholly and exclusively for the purpose of business of assessee - assessee’s claim of such payments u/s. 37(1) of the Act deserves to be allowed. - Decided in favour of assessee Disallowance of expe .....

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rnate and without prejudice to the Ground no 1 above, learned CIT(A)-1, erred in law and on facts in not appreciating that the said expenses is incurred on account of commercial expediency and hence should be allowed u/s 37 of ITA 1961. 3. The learned CIT(A)-1, Pune erred in law and on facts, in partially sustaining the disallowance of expenses u/s 14A of the ITA, 1961 made by the learned ITO, Ward 1(3), Pune. The learned CIT(A)-1, Pune ought not to have sustained disallowance of ₹ 3,90,531/- made under rule 8D(iii) of the ITA, 1961, considering the facts of the case and various legal propositions. 4. The appellant craves, leave to add / modify / delete all or any of the grounds of appeal. 3. Shri Kishor Phadke appearing on behalf of .....

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4A r.w. Rule 8D(iii) ₹ 3,90,531/- sustained by the First Appellate Authority. The ld. AR submitted that the Assessing Officer had made disallowance of ₹ 13,22,343/- u/s. 14A r.w. Rule 8D. In First Appellate proceedings the Commissioner of Income Tax (Appeals) granted partial relief to the assessee by deleting disallowance made under Rule 8D(ii) and confirmed the disallowance under Rule 8D(iii). The Commissioner of Income Tax (Appeals) ought to have deleted entire disallowance made u/s. 14A r.w. Rule 8D. 4. On the other hand Ms. Shabana Parveen representing the Department vehemently defended the impugned order. The ld. DR submitted that the assessee was not under obligation to discharge the liability under EPF and ESIC in respect .....

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nt Fund & Miscellaneous Provisions Act 1952 and Employees Provident Fund Scheme 1952 together with the clauses of the agreement that the Assessee had entered into with his clients shows that Assessee is responsible for the deduction of provident fund dues of the employees including those employed through subcontractor and its deposit with the appropriate authorities. In the present case, the rendering of services by the labours of sub-contractors for the purpose of business of the Assessee has not been doubted by Revenue. Further, statutorily the Assessee could have recovered the Provident Fund dues from the subcontractors but when the Assessee is not in a position to recover the amounts paid as provident fund contribution for the respe .....

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rious courts have held that when as long as the expenditure incurred is "wholly and exclusively" for the purpose of business, the Assessing Officer cannot by applying of his own mind, disallow whole or a part of the expenditure. The Assessing Officer cannot question the reasonableness by putting himself in the arm-chair of the businessman and assume status or character of the assessee and that it is for the assessee to decide whether the expenses should be incurred in the course of his business or profession or not. Courts have also held that if the expenditure is incurred for the purposes of the business, incidental benefit to some other person would not take the expenditure outside the scope of Section 37(1) of the Act. Further, .....

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l is allowed. 7. In ground No. 3 of the appeal, the assessee has assailed disallowance of expenditure u/s. 14A r.w. Rule 8D(iii) amounting to ₹ 3,90,531/-. A perusal of impugned order shows that the Assessing Officer had made disallowance of ₹ 13,22,343/- u/s. 14A r.w. Rule 8D(ii) and (iii). In First Appellate proceedings the Commissioner of Income Tax (Appeals) deleted disallowance of ₹ 9,31,812/- in respect of interest expenditure, i.e. disallowance made under Rule 8D(ii). The Commissioner of Income Tax (Appeals) sustained statutory disallowance of 0.5% of the average value of investments under Clause (iii) of Rule 8D. We observe that the findings of Commissioner of Income Tax (Appeals) on this issue are fair and reasona .....

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