ITAT Kolkata: 40% of Income Must be Treated as Taxable After Disallowance

The Income Tax Appellate Tribunal (ITAT)’s Kolkata Bench has ruled that under Rule 8(1) of the Income Tax Rules, 1962, only 40% of the assessee’s income must be treated as taxable income after making the disallowance and computing the assessee’s income.

The Assessing Officer must calculate the income after making a disallowance concerning an EPF late deposit by the Assessee, and then recompute the taxable income by applying Rule 8(1) of the Income Tax Rules, 1962, following a directive from the bench of Sanjay Garg (Judicial Member) and Rajesh Kumar (Accountant Member).

The way the revenue from the production and cultivation of tea is calculated is covered in Rule 8(1) of the Income Tax Rules, 1962. According to Sub-Rule (1), the sale of tea that the seller grew and manufactured in India results in income that is calculated as though it were business income, with 40% of such income being deemed to be taxable income.

The appellant/assessee argued that even if the late deposit of employee shares for Provident Fund contributions after the due period resulted in their disallowance, the income still had to be estimated under Rule 8(1) of the Income Tax Rule, 1962.

The assessee’s income from the growing and manufacture of tea must be calculated to equal 40% of the total income assessed in line with the Act and taxed accordingly.

A sum of Rs. 2,51,10,171 was denied by the CPC Assessing Officer due to employees’ Provident Fund contributions that were deposited beyond the deadline.

By ruling that the employee’s contribution to the EPF must be submitted within the specified time and not within the time permitted, the CIT (Appeals) rejected the assessee’s appeal.

The Tribunal granted the assessee’s appeal and instructed the AO to recalculate the tax.