TaxTMI 
TaxTMI 
2025 (5) TMI 1698
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....ct, 1961 [hereinafter referred to as "Act"] dated 09.01.2024 for the Assessment Year [A.Y.] 2023-24. 2. The grounds of appeal are as under: 1 On the facts and in the circumstances of the case and in law, the Ld. Commissioner of Income-Tax (Appeals)-2, Delhi ["CIT(A)"] has erred in sustaining the addition made by the Centralized Processing Centre ["CPC"] vide the intimation u/s.143(1) on account of Interest on delay in depositing Employee's contribution to Provident Fund ["PF"] of Rs. 2,45,36,654/- without appreciating the appellant's contention that the said interest is compensatory and not penal in nature and was incurred wholly and exclusively for purpose of business and as supported by various judicial pronouncements and hence....
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....justment u/s.143(1)(a) of the Act calling for its response to the proposed addition. The assesse disapproved the proposed addition. However, the CPC disallowed Interest on late deposit of EPF aggregating to Rs. 3,43,35,543/- on account of the inconsistency in income tax return and Tax Audit Report. 4. In the subsequent appeal before the ld.CIT(A), the assessee contented that the company paid interest on account of delayed contribution made under section 7Q of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 and as the payment was compensatory and not penal in nature had claimed deduction of the aforesaid amount under section 37(1) of the Act. It was further submitted that as per the provisions of section 37 of the ....
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....t in payment of such income tax could not be allowed as a deduction. In arriving at the conclusion, the court followed its own decision in the cases of East India Pharmaceutical Works Ltd, 224 ITR 627 and Smt. Padmavati Jaikrishna, 166 ITR 176, where decision dealt with the issue of deductibility of interest paid on moneys borrowed for payment of income tax. 5.1 The ld.CIT(A) observed that in this case, the interest paid on delayed Provident Fund payments had to take its nature from the principal in terms of provisions of Section 36(1)(va) with respect to any sum received by the assessee from any of its employees to which provision of Section 2 (24)(x) applied, if credited by it to the employees' account in the relevant fund or funds on or....
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....roversy was settled in 2022 by the Hon'ble SC in Checkmate Services Pvt Ltd V. CIT 448 ITR 519 (SC). 5.2 The ld.CIT(A) concluded that if the principal sum was not deductible, the interest thereon partakes the nature of the principal. As the nature of deduction is covered under Section 36(1)(va)which is not permitted in law, the deduction of the interest on such delayed payments could not be allowed as allowable deduction under Section 37. He further pointed out that the Section 37 is residual section wherein deduction only with respect to those expenses can be claimed which are not covered in Section 30 to 36 and payments done should be for the purpose not prohibited by law. It is very clearly laid down now that deduction with respect to t....
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....efore the appellate authority. It is also submitted that similar disallowance made in AY 2022-23 by the CPC was deleted by the AO in order u/s.143(3) of the Act. 8. We have carefully considered all the relevant aspects of the case, provisions of the Act in this regard and the rival submissions. Now, the law is settled as regard Employees' Contributions to PF are concerned, in the case of Checkmate Services(supra). The hon'ble Apex Court has duly differentiated employees' and employer's contributions which are otherwise allowable u/s.43B even within the 'due date' of filing of return which is not the case in the employees' contribution. The hon'ble court observed that section 43B was introduced so that deductions, which were otherwise permi....
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....rovisions is that, on the one hand, it brought into the fold of income amounts that were receipts or deductions from employee's income; at the same time, payment within the prescribed time by way of contribution of the employees share to their credit with the relevant fund is to be treated as deduction (Section 36(1)(va)). In this context, it noted a marked distinction between the nature and character of the two amounts, the employer's liability is to be paid out of its income, whereas the second is deemed an income, by definition, since it is the deduction from the employee's income and held in trust by the employer. The Court held that the marked distinction had to be borne while interpreting the obligation of every assessee under section....