PR. COMMISSIONER OF INCOME TAX vs. M/S RAJASTHAN RENEWABLE ENGERY CORP. LTD.

Facts

The appellant, Pr. Commissioner of Income Tax, Jaipur - II, Jaipur, has filed an appeal under Section 260A of the Income Tax Act, 1961, against the order of the Income Tax Appellate Tribunal (ITAT). The appeal challenges the ITAT's deletion of additions made by the Assessing Officer (AO) concerning contributions to the State Renewal Fund (Rs. 20,00,000/-), employees' contribution to PF & ESI deposited beyond the prescribed time limit (Rs. 8,60,731/-), contribution to the Energy Conservation Fund (Rs. 1,00,00,000/-), and contribution to Rajasthan Bhawan (Rs. 1,00,00,000/-). The respondent is M/s Rajasthan Renewable Energy Corp. Ltd.

Held

Regarding issues 1, 4, and 5 concerning contributions to the State Renewal Fund, Energy Conservation Fund, and Rajasthan Bhawan, the High Court found that the ITAT's deletion of additions was reasonable. The Court referred to its own common judgment dated 02.08.2017 in D.B. Income Tax Appeal No. 145/2015, Principal Commissioner of Income Tax vs. M/s. Rajasthan State Industrial Development & Investment Corporation Ltd., which had upheld similar expenditures claimed under Section 37(1). Therefore, no interference was deemed necessary on these grounds. Regarding issues 2 and 3, pertaining to the delayed deposit of employees' contribution to PF & ESI and the applicability of Section 43B versus Section 36(1)(va) read with Section 2(24)(x) of the IT Act, the Court acknowledged that its judgment in CIT vs. M/s. State Bank of Bikaner and Jaipur (2014) 363 ITR 70 (Raj.) binds the revenue. However, the Court noted that the revenue had filed a Special Leave Petition (SLP) against this judgment before the Supreme Court, which was pending. Consequently, while the ITAT's decision on these questions was against the revenue, it was subject to the final outcome of the Supreme Court's decision.

Key Issues

1. Whether the ITAT was justified in deleting the addition of Rs. 20,00,000/- made on account of contribution to the State Renewal Fund, considering it as a diversion of income not allowable under Section 37(1) of the IT Act. 2. Whether the ITAT was justified in deleting the addition of Rs. 8,60,731/- for depositing employees' contribution to PF & ESI beyond the prescribed time limit. 3. Whether the ITAT was justified in holding that employees' contribution to PF and ESI is governed by Section 43B and not by Section 36(1)(va) read with Section 2(24)(x) of the IT Act. 4. Whether the ITAT was justified in upholding the deletion of disallowance of contribution to the Energy Conservation Fund of Rs. 1,00,00,000/-, considering it as a diversion of income not allowable under Section 37(1) of the IT Act. 5. Whether the ITAT was justified in deleting the disallowance of contribution to Rajasthan Bhawan of Rs. 1,00,00,000/-, as it was not a business expenditure. Assessee's Contention: The assessee claimed these contributions as business expenditure. The ITAT deleted the additions made by the AO. Revenue's Contention: The revenue argued that these contributions are diversions of income and not allowable as business expenditure under Section 37(1) of the IT Act. For issues 2 and 3, the revenue contended that the disallowance for delayed deposit of employees' PF/ESI contributions was justified. The revenue also noted that an SLP against a binding precedent on these issues is pending before the Supreme Court.