POPULAR FREIGHT EXPRESS PRIVATE LIMITED,KOCHI vs. DCIT, CORPORATE CIR 2(1), KOCHI

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ITA 416/COCH/2025Status: DisposedITAT Cochin31 July 2025AY 2013-14Bench: SHRI INTURI RAMA RAO (Accountant Member)5 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal upheld the disallowance of employees' contribution to PF & ESI, citing the Supreme Court's decision in `Checkmate Services P. Ltd.`, which mandates deposit within the statutory due date. However, the Tribunal allowed the assessee's appeal regarding the interest expense disallowance, as the AO failed to provide evidence that funds advanced to Directors were for non-business purposes.

What were the facts?

The assessee, Popular Freight Express Pvt. Ltd., a clearing & forwarding sub-agent, filed its return for AY 2013-14. The AO disallowed employees' contribution to PF & ESI for delayed remittance (Rs. 92,338/-) and disallowed interest expenses (Rs. 11,91,555/-) claiming diversion of interest-bearing funds to Directors as interest-free loans for non-business purposes. The CIT(A) confirmed both disallowances.

What were the issues?

Whether employees' contribution to PF & ESI, remitted after the statutory due date but before the Section 139(1) due date, is an allowable deduction. Whether interest expenses are disallowable if interest-bearing funds are advanced to Directors without evidence of non-business purpose.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 36(1)(va),Section 139(1)

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Income Tax Appellate Tribunal, COCHIN BENCH

Before: SHRI INTURI RAMA RAO, AM

For Appellant: Shri Thomas Joseph, CA
For Respondent: Smt. Leena Lal, Sr.DR
Hearing: 13.06.2025Pronounced: 31.07.2025

This appeal filed by the assessee is directed against the order of the ADDL/JCIT (A)-1 Visakhapatnam [CIT(A)] dated 31.03.2025 for Assessment Year (AY) 2013-14. 2. Brief facts of the case are that the assessee is a company engaged in the business of clearing & forwarding of Air Cargo as a sub-agent for commission. The return of income for the A.Y. 2013- 14 was filed on 01/10/2013 disclosing income of Rs. 16,61,880/-.

Popular Freight Express Pvt. Ltd. Against the said return of income, the assessment was completed by the AO vide order dated 25/02/2016 passed u/s. 143(3) of the Act at a total income of Rs. 29,55,773/-. While doing so, the AO made disallowance of Rs. 92,338/- being amount of employees’ contribution towards PF & ESI remitted beyond the due date specified in the respective Act. The AO also made addition of Rs. 11,91,555/- by holding that the interest bearing funds were diverted to the Directors by way of extending the interest free loans. Accordingly, disallowed the interest expenses of Rs. 11,91,555/-.

3.

Being aggrieved, an appeal was filed before the CIT(A), who vide the impugned order confirmed the disallowance of employees’ contribution towards PF & ESI and also confirmed the disallowance of interest on account of diversion of funds to Directors.

4.

Being aggrieved, the assessee is in appeal before the Tribunal in the present appeal.

5.

Ground Nos. 1 & 9 are general in nature. The assessee by way of ground No.2 challenges the disallowance of belated payment of employees’ contribution towards PF & ESI. The issue is now settled against the assessee by the judgment of the Hon'ble Supreme Court in the case of Checkmate Services P. Ltd. v. CIT [2022] 448 ITR 518 (SC) wherein it has been held that the deduction of the employees’ share can be allowed u/sec.36(1)(va) only if it is Popular Freight Express Pvt. Ltd. deposited before the time limit under the respective statutes and not before the due date u/sec. 139(1) of the Act.

6.

Respectfully following the decision of Hon'ble Supreme Court in the above referred to case, I dismiss this ground of appeal

raised by the assessee.

7. Ground Nos.3 to 8 challenges the disallowance of interest by holding that interest bearing funds were diverted to the Directors in the form of interest free bearing advances.

8. It is contended that the amounts were advanced to the Directors for the purpose of repayment of principal amount of loan and interest to the third parties. Therefore, the question of disallowance of interest does not arise.

9. On the other hand, ld. Sr. DR supported the orders of the lower authorities and submitted that the order passed by the Ld. CIT(A) is a reasoned one, requires no interference.

10. I have heard rival submissions and perused the material on record.

11. The issue in the present ground of appeal relates to disallowance of interest by holding that interest bearing funds were diverted for non-business purpose in the form of interest free bearing advances to the Directors. On mere perusal of the Popular Freight Express Pvt. Ltd. assessment order, it appears that the AO merely swayed by the fact that money were advanced to the Directors, but no material was brought on record by the AO to demonstrate that these were made to the Directors for non-business purpose. There can be for many reasons as to why money was paid to the Directors to meet the expenses on behalf of the company. It is a question of fact which has to be demonstrated by leading necessary evidence on record. The contention of the assessee that, the money were paid to the Directors to repay the loans borrowed on behalf of the company, cannot be ruled out. Therefore, in absence of any evidence to show that money were advanced to the Directors for non-business purpose. Thus, these grounds of appeal raised by the assessee are allowed.

12. In the result, the appeal filed by the assessee is partly allowed Order pronounced in the open court on 31st July, 2025.

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