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Facts
The assessee's return for AY 2018-19 was selected for scrutiny. The AO disallowed employee's contribution to PF/ESIC paid after the due date, proportionate interest on a non-business loan, and GST/Service Tax amounts for which proof of timely payment before the ITR due date was not provided. The CIT(A) upheld all these disallowances.
Held
The Tribunal upheld the CIT(A)'s decision on all three grounds. For employee contributions, it relied on the Supreme Court's judgment in *Checkmate Services Pvt. Ltd. v. CIT*. For the interest disallowance and GST/Service Tax disallowance, the Tribunal noted the assessee's failure to provide documentary evidence to substantiate business purpose or timely payment, respectively.
Key Issues
Whether employee contributions to PF/ESIC, proportionate interest on non-business advances, and GST/Service Tax are disallowable if not paid by their respective due dates and proof not furnished.
Sections Cited
36(1)(va), 36(1)(iii), 43B, 143(1)
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Income Tax Appellate Tribunal, MUMBAI BENCH “A” MUMBAI
Before: SHRI OM PRAKASH KANT & MS. KAVITHA RAJAGOPAL
This appeal by the assessee is directed against order dated 30.09.2024 passed by the Ld. Commissioner of Income-tax (Appeals) – 53, Mumbai [in short ‘the Ld. CIT(A)’] for assessment year 2018-19.
The Stay petition of the assessee is for seeking stay on the recovery of the demand in relation to the present ITA. Both the parties agreed to take up the appeal of the assessee first for adjudication.
2.1. The Ground raised by the assessee in this appeal are reproduced as under: “Ground 1. Disallowance U/s 36(1) (va) on account of payment to Employer contribution of pf esic after the respective due date Ground 2. Disallowance U/s36(1)(iii) on account of interest on non- interest bearing Loan given Ground 3. Disallowance U/s.43B on account of Non-payment of Service Tax GST after due date of filing of income tax return.”
3. Briefly stated fact of the case are that the assessee filed its return of income for the year under consideration on 31.10.2018 declaring its total income at Rs. 1,31,14,930/-. Subsequently the return of income filed was processed u/s 143(1) of the Income-tax Act, 1961[in short ‘the Act’]. Thereafter, the return of income was selected for scrutiny assessment and statutory notices under the Act were issued and complied. During the course of the Assessment proceeding, the Ld. Assessing Officer(AO) observed, that, firstly, Employee’s Contribution towards Provident Fund(PF) and Employee State Insurance Corporation(ESIC) amounting to Rs. 14,86,170/- was paid after the due date stipulated under the respective Acts , accordingly he disallowed the claim of the assessee in term of section 36(1)(va) of the Act. Secondly, regarding loan of Rs. 60,00,000/- to Shri. Mukesh, the assessee failed to substantiate that loan/advance was for the business purpose , and therefore, interest payment corresponding to the loan/advance was disallowed u/s 36(1)(iii) of the Act. Thirdly, Regarding Goods and Service Tax(GST) of Rs. 91,17,631/- and Service Tax of Rs. 13,77,750/-, the assessee failed to substantiate that same were was paid before the due date of filling of the return of income, thus, he made disallowances of said sums u/s 43B of the Act.
On further appeal, Ld. CIT(A) upheld the disallowances made by the Assessing Officer. Aggrieved, the assessee is in appeal before the Tribunal by way of raising grounds as reproduced above.
In respect of Ground No. 1, which pertains to the disallowance of the employee’s contribution to PF/ESI paid after the due date prescribed under the respective statutory enactments, the learned counsel for the assessee reiterated the submissions made before the learned CIT(A). On the other hand, the learned Departmental Representative placed reliance on the judgment of the Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd. v. CIT (2022) 143 taxmann.com 178 (SC), in support of the disallowance.
We have heard rival submission of the parties and perused the relevant material on record. We find that issue of disallowance of Employee’s Contribution to PF/ESI paid after due date prescribed under relevant Acts has been settled by the Hon’ble Supreme High Court in the case of Checkmate services Private Ltd. v/s. CIT (supra). The relevant finding of the Ld. CIT(A) on issue in dispute is reproduced as under: “8.1. Facts of the case and submission of the assessee have been examined. However, contention of the assessee is not accepted in view of the decision of the Hon'ble Supreme Court in the case of Checkmate Services (P) Ltd. vs. CIT [2022] 143 taxmann.com 178 (SC) dated 12.10.2022. This issue stands settled now, and is no longer res integra. 8.2. In view of the above, the action of the AO is upheld. Accordingly, Ground No. 1 of the appeal is DISMISSED.”
Since the Ld. CIT(A) has followed the precedent on the issue- in-dispute and therefore, we don’t find any infirmity in the same and accordingly the finding of the Ld. CIT(A) is upheld. The ground No. 1 of the appeal is dismissed.
Regarding the ground of the disallowance of interest amounting to Rs. 7,23,078/-, the Ld. CIT(A) observed as under:
“Ground No.2: During the course of assessment proceedings it was found by the AO that the assessee has shown long term borrowing of Rs. 10,23,40,006/- and short term borrowing 14,71,75,631/-. Further, the assessee has debited a sum of Rs. 3,81,51,201/-being interest expenses on borrowing and bank processing charges of Rs.15,41,241/-. Moreover, the assessee had given interest free loans of Rs. 1,95,25,650/- to the various parties. The AO had asked the assessee to explain as to whether any interest bearing fund have been diverted for non-business purposes without charging any interest or for acquisition of capital assets and as to why such proportionate interest expenses should not be disallowed u/s 36(1)(ii) of the Act all capitalized with the capital assets. The assessee had submitted that no interest bearing funds were diverted for non- business purposes without charging any interest or for any acquisition of assets. Further, the AO had found that addition u/s 36(1)(iii) on similar issue was made during AY 2017-18 also. In the assessment proceedings for AY 2017-18, the assessee has submitted that it had entered into a contract/work order with G&S Associates and had given advances of Rs. 1,35,00,000/- for the purpose of software and related IT infrastructure. However, on account some dispute, the contract was not executed and the party did not refund the advance given to them. However, the assessee had not submitted any details in response to loan and advances of Rs. 60 lakh given to Shri Mukesh Gada and Shri Pravin Gala. Therefore, the AO had worked out disallowance on account of interest u/s 36(1) (iii) of the IT Act of Rs. 7,20,000/- being 12% of Rs. 60,00,000/- and added to the total income of the assessee for AY 2017-18. Similarly, during the AY 2018-19 also, the assessee had not submitted any details. Further, AO had observed that the assessee had not preferred an appeal before CIT(A) on this issue for AY 2017-18 which confirmed that the assessee has passively accepted the said addition. Hence, after considering the reply of the assessee, the AO has considered remaining amount of Rs. 60,25,650/- (Rs. 1,95,25,650/- Rs. 1,35,00,000/-) to be treated as loans and advances given for the purpose other than business activities. Accordingly, AO has disallowed Rs. 7,23,078/- being 12% of Rs. 60,25,650/- u/s 36(1) (iii) of the IT Act and added to the total income of the assessee. 9.1 During the appellant proceedings also, the assessee has merely mentioned that it has given amount to Shri Pravin Gala and Shri Mukesh Gada as advance for project and on account of some dispute, the transactions could not be materialized and party did not refund the advance given. However, the contention of the assessee is not acceptable as the assessee neither before the AO nor before the undersigned has submitted any details regarding details/documentary evidence an amount given to Shri Pravin Gala and Mukesh Gada. Therefore, disallowance of Rs. 7,23,078/- made by the AO u/s 36(1) (iii) is confirmed. Accordingly, the ground of the appeal is dismissed.”
Before us, the learned counsel for the assessee reiterated that the advances made to Shri Mukesh Gala and Shri Pravin Gala were in connection with a proposed business contract, which ultimately did not materialize. It was further submitted that the said advances were not returned. However, the learned counsel failed to furnish any documentary evidence to substantiate that the advances were made for business purposes. The learned CIT(A) has also observed that similar disallowance was made by the Assessing Officer in the assessment year 2017–18, which was accepted by the assessee. Even before us, no documentary evidence has been placed on record to demonstrate that the advances to Shri Mukesh Gala and Shri Pravin Gala were for business purposes. Since the advances were made out of interest-bearing borrowed funds, the Assessing Officer was justified in disallowing the proportionate interest expenditure related to those advances. We, therefore, find no infirmity in the order of the learned CIT(A) on this issue, and accordingly, uphold the same. Ground No. 2 of the appeal is dismissed.
As far as ground No. 3 of the appeal relating to disallowances u/s 43B of the Act in respect of GST of Rs. 16815 and Service Tax of 377570 is concerned, the assessee failed to produce challan for payment of taxes on or before the due date of filing of return of income. The finding of the Ld. CIT(A) on the issue and dispute is reproduced as under : “10. Ground No.3: Disallowance u/s 43B of the IT Act. During the course of scrutiny proceedings, the AO has disallowed an amount of Rs. 04,38,420/- (Goods and Service tax of Rs. 16,850 + Service tax of Rs. 03,77,570) u/s. 43B of the IT Act as the assessee could not provide challans of the said amount showing that it has paid the taxes on or before due date of filing of return of income. During the course of appellate proceedings, the assessee has submitted that the that challan for an amount of Rs. 04,38,420/- were not traceable and could not be produced during assessment proceedings for verification. However, even during the appellant proceedings, the assessee has not produced any documentary evidence regarding payment of GST and service tax of Rs. 4,38,420/- on or before due date of filing of return. Therefore, disallowance of Rs. 4,38,420/-made u/s 43B of the IT Act by the AO is confirmed. Accordingly, the ground of the appeal is dismissed.”
We have heard the rival submissions of the parties and perused the relevant material available on record. Before us, the assessee has also failed to furnish any documentary evidence to demonstrate that the service tax and GST amounts were paid on or before the due date for filing the return of income. In the absence of such evidence, and in view of the provisions of Section 43B of the Income Tax Act, the deduction in respect of the said expenses cannot be allowed. Accordingly, we find no infirmity in the order of the learned CIT(A) on this issue. The same is hereby upheld, and Ground No. 3 of the assessee’s appeal is dismissed.
Since the appeal of the assessee itself has been decided, the stay petition filed by the assessee is rendered infructuous.
In the result, the appeal as well the stay application of the assessee stand dismissed.
Order pronounced by way of display of result on notice board under Rule 34(4) of ITAT Rules, 1963 on 19/05/2025.