MR. VENKATARAMAN SWAMINATHAN,CHENNAI V. ITO, NCC-19(1), CHENNAI

ITA 2603/CHNY/2024

AI Insights

The case revolves around an appeal by Mr. Venkataraman Swaminathan against the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Center, Delhi, which confirmed an addition of Rs. 5,99,836 as excess contribution to any fund under section 36(1)(iv) of the Income Tax Act, 1961. The primary contention was the incorrect application of Rule 87 of the Income Tax Rules, which caps the employer's contribution to a fund at 27% of the employee's salary. The assessee argued that the Income Tax Officer (ITO) erroneously combined ESI and PF deductions, leading to a cumulative total of 32%, thus breaching the threshold limit. The Tribunal found that the ITO had not examined the calculations on a per-employee basis as required by the law, leading to the setting aside of the lower authorities' orders.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 470334 (ITAT-CHENNAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-02-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2017-2018
• Laws Referred To: Income Tax Act, Income Tax Rules
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANITHA
• Assessee Lawyers: D.ANAND
• Keywords: Set aside
• Section: 250

Judgement Text

"Page - 1 - of 4 आयकर अपीलीय अधिकरण,’सी’ न्यायपीठ, चेन्नई। IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH: CHENNAI श्री यस यस विश्वनेत्र रवि, न्यावयक सदस्य एवं श्री अविताभ शुक्ला, लेखा सदस्य क े समक्ष BEFORE SHRI SS VISWANETHRA RAVI, JUDICIAL MEMBER AND SHRI AMITABH SHUKLA, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.2603/Chny/2024 निर्ाारण वर्ा /Assessment Years: 2017-18 Mr.Venkataraman Swaminathan, No.28/1, Velu Street, West Mambalam, Chennai-600 033. [PAN: AASPS3855R] Income Tax Officer, Non.Corporate Circle-19(1), Chennai. (अपीलार्थी/Appellant) (प्रत्यर्थी/Respondent) अपीलार्थी की ओर से/ Assessee by : Shri D.Anand, Advocate. प्रत्यर्थी की ओर से /Revenue by : Ms.Anitha, Addl.CIT सुिवाई की तारीख/Date of Hearing : 20.01.2025 घोर्णा की तारीख /Date of Pronouncement : 07.02.2025 आदेश / O R D E R PER AMITABH SHUKLA, A.M : This appeal is filed by the assessee against the order bearing DIN & Order No.ITBA/APL/S/250/2024-25/1068376167(1) dated 05.09.2024 of the Learned Commissioner of Income Tax [herein after “CIT(A), National Faceless Appeal Center[NFAC], Delhi, for the assessment years 2017-18. Through the aforesaid appeal the assesse has challenged order u/s 250 dated 05.09.2024 passed by NFAC, Delhi. ITA No.2603/Chny/2024 Page - 2 - of 4 2.0 The Ld. Counsel for the assessee submitted that the only issue seminal to the controversy is the action of the Ld.AO in making an addition of Rs.5,99,836/- as excess contribution to any fund u/s 36(1)(iv) and its confirmation by the Ld. CIT(A). The Ld. Counsel informed that rule 87 of income tax rules provides an employer upward capping of 27% of his salary for allowing the benefit of deduction. It has been submitted that page 3 of the Ld. AO’s order shows that he has combined ESI and PF deductions so as to conclude that the cumulative total comes to 32% and hence the assessee has breached the threshold limit of 27%. The Ld. Counsel submitted that this action of the Ld. AO is irregular and not supported by contemporary rules and law governing the subject. The Ld. Counsel further argued that the decision of Ld.CIT(A) is also flawed as he has confirmed the addition on wrong premise of ESI and PF being on the same putting for the purposes of section 36(1)(iv) r.w. rule 87. The Ld. DR vehemently supported the order of lower authorities. 3.0 We have heard rival submissions on the matter in the light of material available on records. It is an undisputed fact on issue that Rule 87 of the IT rules prescribe a maximum threshold limit of 27 %. The Ld counsel of the Assessee has submitted that if viewed separately the percentage of provident fund works out to only 25.36% and that therefore ITA No.2603/Chny/2024 Page - 3 - of 4 the calculation of 32 % given by the Ld AO in page 3 of his order is patently erroneous. We have noted that Rule 87 reads as under:- “…..87. The ordinary annual contribution by the employer to a fund in respect of any particular employee shall not exceed [twenty-seven] per cent of his salary for each year as reduced by the employer's contribution, if any, to any provident fund (whether recognized or not) in respect of the same employee for that year …” . Further, section 36(1)(iv) of the act provides as under:- (iv) “….any sum paid by the assessee as an employer by way of contribution towards a recognized provident fund or an approved superannuation fund, subject to such limits as may be prescribed for the purpose of recognizing the provident fund or approving the superannuation fund, as the case may be; and subject to such conditions as the Board may think fit to specify in cases where the contributions are not in the nature of annual contributions of fixed amounts or annual contributions fixed on some definite basis by reference to the income chargeable under the head ―Salaries‖ or to the contributions or to the number of members of the fund…” 4.0 Thus we have noted that section 36(1)(iv) of the act is the substantive law prescribing sanction of deduction to assessee’s as an employer by way of contribution towards a recognized provident fund or an approved superannuation fund and Rule 87 provides the procedural part of it postulating that a threshold limit of 27% shall apply in respect of each specific employee for whom the deduction u/s 36(1) ( iv) have been claimed . The mandate of the law is clear in as much as the deduction is to be calculated in respect of “same employee”. We have noted that the Ld.AO has not examined any calculation to this effect and has merely applied the filter on gross payments. The order of the Ld. AO thus suffers from the defect of an order not complying with the statutory provisions governing the matter. Accordingly, we set aside the order of ITA No.2603/Chny/2024 Page - 4 - of 4 lower authorities and direct the Ld. AO to recalculate assesse claim by examining the case employee wise after giving due opportunity of being heard and by passing a speaking order. The Assessee shall comply with statutory notices issued by the Ld.AO. Any non-compliance may be adversely viewed. Accordingly all the grounds of appeal raised by the Assessee are allowed for statistical purposes. 5.0 In the result appeal of the assessee is allowed for statistical purposes. Order pronounced on 7th , February -2025 at Chennai. Sd/- (यस यस नवश्विेत्र रनव) (SS VISWANETHRA RAVI) न्यानयक सदस्य / Judicial Member Sd/- (श्री अनमताभ शुक्ला) (AMITABH SHUKLA) लेखा सदस्य /Accountant Member चेन्नई/Chennai, नदिांक/Dated: 7th , February -2025 . KB/- आदेश की प्रतितिति अग्रेतिि/Copy to: 1. अिीिार्थी/Appellant 2. प्रत्यर्थी/Respondent 3. आयकर आयुक्त/CIT – Chennai. 4. तिभागीय प्रतितिति/DR 5. गार्ड फाईि/GF "