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Income Tax Appellate Tribunal, HYDERABAD BENCHES “B” BENCH: HYDERABAD
Before: SHRI V. DURGA RAO & SHRI RIFAUR RAHMAN
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES “B” BENCH: HYDERABAD BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER AND SHRI RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA. No.1580/Hyd/2018 Assessment Year: 2014-15 Anand Ispat Udyog Limited, vs. Income Tax Officer, Hyderabad. Ward-1(4), PAN: AACCA 7074 M Hyderabad. (Appellant) (Respondent) For Assessee: Shri Sarang Shah For Revenue : Smt. M. Narmada, DR Date of Hearing : 05.03.2019 Date of Pronouncement : 13.03.2019 ORDER PER V. DURGA RAO, JM. This appeal filed by the assessee is directed against the order passed by the Ld. CIT(A)-1, Hyderabad dated 10/05/2018 for the assessment year 2014-15. The assessee has raised the following grounds of appeal:
“1. The Ld. CIT(A)-1, Hyderabad in so far as it is against the appellant, is contrary to law and facts of the case. 2. The Ld. CIT(A) erred in upholding the disallowance of an amount of Rs. 6,10,685/- by the Assessing Officer, towards “expenditure by way of interest during the previous year which is not directly attributable to any particular income or receipt” under Rule 8D(2)(ii) of the Income Tax Rules. 3. The Ld. CIT(A) erred in upholding the addition of an amount of Rs. 64,750/- under Rule 8D(2)(iii) of the Income Tax Rules by the Assessing Officer. 4. The Ld. CIT(A) erred in upholding the disallowance of an amount of Rs. 1,52,190/- by the Assessing Officer u/s 36(1)(va).
The appellant craves leave toto add to any of the ground, or plead any other reasons that may be presented before or at any time of hearing of appeal.” 2. Brief facts of the case are that the assessee-company, engaged in the business of manufacture of MS ingots and rods, filed its return of income declaring an income of Rs. 35,76,717/- under the normal provisions and Rs. 29,98,673/- u/s 115JB of the Act. During the scrutiny proceedings, A.O. noticed that the employee’s contribution towards Provident Fund and ESI amounting to Rs. 1,30,666/- and Rs. 21,524/- respectively was paid beyond due date. Therefore, A.O. invoked the provisions of section 36(1)(va) and disallowed Rs. 1,52,190/-. It was also observed during the scrutiny proceedings that assessee-company made investments in M/s. Agras Residency Pvt Ltd (Rs. 1,20,00,000/-) and M/s. Anand Metallics and Power Pvt Ltd (Rs. 9,50,000/-) amounting to Rs. 1,29,50,000/- and claimed an amount of Rs. 1,71,80,509/- as finance charges which includes interest expenditure. In this regard, assessee was asked to show cause why disallowance u/s 14A may not be made in this case and having not satisfied with the correctness of the claim made by the assessee, A.O made addition of Rs. 6,75,435/- under section 14A r.w Rule 8D and completed the assessment u/s 143(3) of the Act determining the assessed income at Rs. 44,04,342/-.
Aggrieved, with the said decision of the A.O., assessee preferred an appeal before the CIT(A), who confirmed the decision of the A.O. and
dismissed the appeal. Aggrieved, assessee is in appeal before us by raising the above mentioned grounds of appeal.
Before us, Ld Counsel appearing for the assessee, on the issue of disallowance u/s 36(1)(va), submitted that an identical issue has come up before the Hon’ble Supreme Court in the case of CIT vs. Alom Extrusions Ltd (319 ITR 36), which in turn was followed by the ITAT, Hyderabad “A” Bench in the case of VBC Industries Ltd vs. DCIT (ITA No.143/Hyd/2013) whereby if any payment is made towards employee’s contribution to EPF / ESI before due date for filing the return of income u/s 139(1) of the Act, disallowance cannot be made by invoking the provisions of section 43B of the Act. 5. On the other hand, Learned Departmental Representative relied on the decision of the Hon’ble Madras High Court in the case of Unifac Management Services (India) (P) Ltdvs. DCIT [2018] 409 ITR 225 (Madras) wherein it was held that the scope of 43B and section 36(1)(va) are different and thus, there is no question of reading both the provisions together to consider whether assessee-employer is entitled to deduction in respect of sum belatedly paid towards employee contribution. He also relied upon the CBDT Circular No.22/2015 [F.No.279/Misc/140/2015-ITJ], dated 17/12/2015.
We have heard both the parties, considered the rival contentions and perused the material on record. The case of the assessee is if any
payment is made towards employee’s contribution to EPF / ESI before due date for filing the return of income u/s 139(1) of the Act, disallowance cannot be made by invoking the provisions of section 36(1)(va) of the Act. On this issue, ITAT, Hyderabad Bench has taken a consistent view that if the payment of employees contribution to PF, ESI is made before due date for filing the return, even though beyond the date stipulated under the relevant enactment, no disallowance can be made by invoking the provisions of section 36(1)(va) of the Act and this view was based upon the decisions of various High Courts as well as Hon’ble Supreme Court (supra). In the instant case, the case of the assessee falls under the purview of section 36(1)(va), which specifically deals with the ‘employee’s contribution’ and not related to section 43B, which deals with ‘employer’s contribution’. Therefore, the case law relied upon by the Learned Departmental Representative has no application to the case on hand. In our view, the A.O. has wrongly invoked the provisions of section 36(1)(va) r.w.s 2(24)(x) of the Act. Therefore, following the consistent view taken by the ITAT as well as the various High Courts on the issue, we direct the A.O. to verify whether the date of deposit of contribution is before due date for filing return and allow the claim of the assessee in accordance with law. Accordingly, ground no.4 is allowed.
As regards Grounds no.2 and 3 are concerned, they relate to the disallowance u/s 14A read with Rule 8D(2)(ii) of the Act. In this regard,
A.O. made disallowance of Rs. 6,75,435/- towards interest payments attributable to investments and on appeal, CIT(A) confirmed the A.O.’s decision. Both the parties were heard on this issue. On perusal of the record, we find that neither the assessee earned any exempt income during the previous year not there exists any nexus between the investment and borrowed funds bearing payment of interest. Therefore, in our considered opinion, the assessee has not earned any dividend income / exempt income during the relevant year and therefore there is no case for making disallowance u/s 14A read with Rule 8D as held by the Hon’ble Delhi High Court in the case of Cheminvest Limited [2015] 378 ITR 33. Respectfully following the same, we delete the disallowance made by the A.O. u/s 14A read with Rule 8D. Accordingly, the grounds no.2 and 3 raised by the assessee are allowed.
Grounds no.1 and 5 are general in nature and therefore, they are dismissed as such.
In the result, appeal filed by the assessee is partly allowed. Order pronounced in the open court on 13th March, 2019.
Sd/- Sd/- (S. RIFAUR RAHMAN) (V. DURGA RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER Hyderabad, Dated: 13th March, 2019. OKK, Sr.PS Copy to 1. T. Srinivasa Murthy, Advocate, 3-5-1107, 4th Floor, Narayanaguda, Hyderabad-29.
Income Tax Officer, Ward-11(1), 10th Floor, Signature Towers, Botanical Gardens, Kondapur, R.R. District. 3. CIT (A)-5, Hyderabad. 4. Pr. CIT-5, Hyderabad. 5. DR, ITAT, Hyderabad. 6. Guard File