Income To Be Computed First After Making The Disallowance And Only 40% Resultant Income Has To Be Treated As Taxable Income: ITAT

The Kolkata Bench of Income Tax Appellate Tribunal (ITAT) has held that the income of the assessee should be computed first after making the disallowance and whatever 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.

The bench of Sanjay Garg (Judicial Member) and Rajesh Kumar (Accountant Member) has directed the Assessing Officer to compute the income after making disallowance in respect of EPF late deposit by the assessee and then recompute the taxable income by applying Rule 8(1) of the Income Tax Rules, 1962.

Rule 8(1) of the Income Tax Rules, 1962 deals with the manner of computing the income from the 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 40% of such income shall be deemed to be income liable to tax”.

The appellant/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 Act and taxed accordingly.

The Assessing Officer, CPC disallowed a sum of Rs.2,51,10,171 on account of late payment of employees’ contribution to the Provident Fund, which was deposited beyond the due date.

The CIT(Appeals) dismissed the appeal of the assessee by holding that the employees’ contribution to EPF has to be deposited within the stipulated time  and not within the time allowed.

The Tribunal allowed the appeal of the assessee and directed the AO to make the recomputation.

Case Title: M/s. Stewart Holl (India) Limited Versus Assistant Director of Income Tax

Case No.: I.T.A. No. 362/KOL/2021

Date: 19/05/2023

Counsel For Appellant: Soumik Roy and Tanmay Dutta

Counsel For Respondent: Vijay Kumar

Click Here To Read The Order