Compensatory interest on delayed statutory dues is deductible, while late provident fund deposits remain non-allowable.

Medical expenditure for a director's treatment abroad was disallowed for lack of supporting evidence, including board approval and proof of tax treatment as a perquisite, and the matter was remanded for fresh verification. Delayed deposit of employees' provident fund contribution beyond the statutory due date was held not deductible, so the disallowance was sustained. Interest paid on customs duty was treated as compensatory rather than penal in nature and was allowed as revenue expenditure, resulting in deletion of the addition.

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Issues: (i) Whether the disallowance of medical expenditure incurred for a director's treatment abroad was to be sustained or restored for fresh verification; (ii) Whether delayed deposit of employees' contribution to provident fund was deductible; (iii) Whether interest paid on customs duty was allowable as revenue expenditure.

Issue (i): Whether the disallowance of medical expenditure incurred for a director's treatment abroad was to be sustained or restored for fresh verification.

Analysis: The expenditure was disallowed for want of supporting evidence, including board approval and proof that the amount was taxed as a perquisite in the recipient's hands. Additional material was sought to be produced before the Tribunal. In the interests of justice, the matter required fresh examination by the Assessing Officer after giving the assessee an opportunity to place the necessary evidence on record.

Conclusion: The issue was restored to the Assessing Officer and was allowed for statistical purposes.

Issue (ii): Whether delayed deposit of employees' contribution to provident fund was deductible.

Analysis: The contribution was deposited beyond the due date prescribed under the relevant welfare law. The Tribunal applied the settled principle that employees' contribution to provident fund and ESI, if not deposited within the statutory due date, is not allowable as a deduction under the Income-tax Act.

Conclusion: The disallowance was upheld and the ground of the assessee was dismissed.

Issue (iii): Whether interest paid on customs duty was allowable as revenue expenditure.

Analysis: The payment arose from the customs duty liability and was treated by the Revenue as penal in nature. The Tribunal held that the amount represented interest and not a penalty, and relied on the principle that interest paid for delayed statutory dues can be an admissible business expenditure when it is compensatory in character.

Conclusion: The addition was deleted and the Revenue's appeal was dismissed.

Final Conclusion: The assessee obtained relief on the customs duty interest issue and a remand on the director's medical expenditure issue, while the disallowance of delayed employees' provident fund contribution was sustained.

Ratio Decidendi: Interest paid for delayed statutory dues is deductible when it is compensatory in nature and not a penalty, whereas employees' contributions to provident fund not deposited within the statutory due date are not allowable deductions.

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