Income has to be Computed after making Disallowance and 40% Resultant Income to be Treated as Taxable Income: ITAT [Read Order]

The Kolkata Bench of the Income Tax Appellate Tribunal (ITAT), ruled that the income has to be computed after making disallowance and 40% resultant income to be treated as taxable income.

The Assessing Officer, vide intimation under section 143(1) of the Income Tax Act disallowed a sum of Rs.2 crores on account of late payment of employees’ contribution to provident fund, which was deposited beyond the due date as stipulated under the Income Tax Act.

The CIT(Appeals) dismissed the appeal of the assessee, M/s. Stewart Holl (India) Limited, by holding that the employees’ contribution to EPF has to be deposited within the time as stipulated under the Income Tax Act and not within the time allowed under section 139(1) of the Income Tax Act. The assessee has challenged the said order of CIT(Appeals) before the Tribunal.

The assessee raised the ground that despite the disallowance on account of the late deposit of employees’ shares towards provident fund contribution after the due date, the income has to be computed pursuant to Rule 8(1) of the Income Tax Rules, 1962. The income of the assessee needs to be computed from the business of tea growing and manufacturing equal to 40% of total income determined in accordance with the Income Tax Act and taxed accordingly.

Rule 8(1) of the Income Tax Rules, 1962, which deals with the manner of computing the income from cultivation and manufacturing of tea. Sub-Rule (1) provides that “where the income derived from the sale of tea grown and manufactured by the seller in India shall be computed as if it were income derived from business, and forty per cent of such income shall be deemed to be income liable to tax”.

The Two-Member Bench of the Tribunal comprising Sanjay Garg, Judicial Member and Rajesh Kumar, Accountant Member observed that “We find merit in the contention of the assessee that the income of the assessee should be computed first after making the disallowance of Rs.2 crores and whatever is the resultant income only 40% of that income has to be treated as taxable income in terms of Rule 8(1) of the Income Tax Rules, 1962.”

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