INCOME TAX OFFICER, LUCKNOW vs. CPF PICUP TRUST, LUCKNOW

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW ‘B’ BENCH, LUCKNOW BEFORE SH. SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER AND SH. NIKHIL CHOUDHARY, ACCOUNTANT MEMBER ITA No.461/LKW/2025 A.Y. 2020-21 Income Tax Officer vs. CPF Picup Trust, Picup Bhawan, Vibhuti Khand, Gomti Nagar-226010 PAN: AAATC3437D (Appellant) (Respondent) Assessee by: Sh. Siddharth Kohli, Adv Revenue by: Sh. R.R.N. Shukla, Addl CIT DR Date of hearing: 26.02.2026 Date of pronouncement: 15.05.2026 O R D E R PER NIKHIL CHOUDHARY, A.M.: This is an appeal filed by the Department against the orders of the ld. CIT(A), NFAC, allowing the appeal of the assessee against the orders of the Assessing Officer passed under section 143(3) r.w.s. 144B of the Income Tax Act for the Assessment Year 2020-21, on 31.08.2022. The grounds of appeal are as under:- “1. Because of the facts and circumstances of the Ld. CIT (A) has erred in law and on facts in dealing the addition 2.457/- made by the AO on account of Disallowance at deduction u/s 57, where the addition is due to the fact that in reply, the assessee merely submitted a copy of Income and Expenditure account and Balance Sheet which was already filed with the ITR. However, no further details called to in respect of the details of the large deduction u/s 57 amounting to Rs 2.55 157/- were filed Further, a show cause notice dated 26/07/2022 was issued to assessee, through which the assessee was required to submit details and explanation. Despite adequate opportunities cited above, the assessee failed to submit the requisite details in support of its claim of deductions u/s 57 claimed in the 11 amounting Rs. 2,55,82,15 Hence, the deduction u/s 57 of the IT Act, 1961 of Rs. 2,55,82,457/ claimed by the assessee in the ITR of A.Y.2020-21 was hereby disallowed and added back to the total income of the assessee. 2. That the order of CIT(A), being erroneous in law and in fact be cancelled and order of AO be restored.

ITA No.461/LKW/2025 A.Y. 2020-21 CPF PICUP TRUST 3. Any other ground arise during the proceedings of appeal.” 2. The facts of the case are that the assessee is a Trust that filed its return of income on 24.11.2022, declaring a total income of Nil. The case was taken up for scrutiny on account of, ‘Deduction from Income from Other Sources’. The ld. AO records that he issued several notices to the assessee to which the assessee only submitted a balance-sheet and income and expenditure account on one occasion and did not comply on other occasions. The ld. Assessing Officer noted that the assessee had claimed large deduction under section 57 amounting to Rs. 2,55,82,457/- and he requested the assessee to furnish the details of income from other sources and the details of deductions claimed under section 57 alongwith documentary evidences. In response, the assessee submitted a copy of its final accounts and stated that since the expenses pertain to interest paid on employees’ contribution to provident fund, the expenditure may be allowed as the deduction was self-evident from the ITR filed. The Assessing Officer did find the reply to be satisfactory and therefore, after issuing another show cause notice, he added back a sum of Rs. 2,55,82,457/-, disallowing the deduction under section 57. 3. The assessee went in appeal before the ld. CIT(A). Before the ld. CIT(A), it was submitted that the sources of income of the assessee trust were interest earned on securities, interest earned on savings bank account and income from mutual funds. Similarly, the expenses incurred consist principally of interest paid to employees on compulsory and optional contribution and also interest paid on employers’ contribution. It was submitted that the assessee was an employees’ contributory provident fund trust that was recognized by the Income Tax Department. The trust was not engaged in any business activity but only earned income from other sources. The trust was created to make payment of provident fund deducted from 2

ITA No.461/LKW/2025 A.Y. 2020-21 CPF PICUP TRUST employees’ salary as well as employer’s contribution to employees’ at the time of their retirement / leaving of service, alongwith interest thereon and nothing else. The ld. AO had not taken the facts into account in disallowing the deduction under section 57 amounting to Rs. 2,55,82,457/-. It had been pointed out before the ld. AO that since the expenses were nothing but interest paid on employees’ contribution, it should be allowed under section 57. There were several case laws which held that interest paid by CPF Trust to its employees’ on their contribution to the fund cannot be disallowed as expenditure under section 57 of the Act, as it was part of contractual obligation between the employees’ and the CPF Trust. The following cases were cited in support of the above proposition; i. CIT vs. Indian Bank Employees’ Provident Fund (1986) ii. State Bank of India vs. CIT (2008) After considering the submissions of the assessee, the ld. CIT(A) held that the assessee received the contribution, which were deployed in securities and mutual funds. It was under an obligation to pay interest on the contribution received from employer and employees’. The interest expenses were incidental to the management of the fund received by it and qualified for deduction under section 57 of the Act. Accordingly, he allowed the said appeal. 4. The Department is aggrieved at this decision of the ld. CIT(A) and has accordingly come in appeal before us. Sh. R.R.N. Shukla, Sr. DR (hereinafter referred to as the ld. DR) pointed out that the assessee had merely submitted a copy of income and expenditure account and balance-sheet within the course of assessment proceedings. However, no further details that were called for, had been submitted in support of the large deduction claimed

ITA No.461/LKW/2025 A.Y. 2020-21 CPF PICUP TRUST under section 57. It was in these circumstances that the Assessing Officer had made the disallowance and since the requisite details had not been submitted even before the ld. CIT(A), the ld. CIT(A) ought not to have allowed the deduction. Accordingly, he prayed that the orders of the ld. CIT(A) may kindly be set aside and the orders of the ld. Assessing Officer be restored. 5. On the other hand, Sh. Siddharth Kohli, Advocate (hereinafter referred to as the ld. AR) appearing on behalf of the assessee argued that the assessee trust was duly approved vide CIT’s order dated 31.07.1979. It received employees’ and employer’s contributions. It invested the corpus in approved securities, mutual funds and bank deposits and earned income in the form of interest on these. It was under a statutory and contractual obligation to pay interest to employees’ and their accumulated balance. This was not optional. The ld. AR argued that as per section 57(iii), any other expenditure that was not capital expenditure and laid out or expended wholly and exclusively for the purpose of making or earning such income (income from other sources) was allowable for deduction. In the present case, the income was earned from the deployment of provident fund corpus and the obligation to pay interest arose directly from receipt and management of the corpus. Thus, the earning of income and payment of interest were inseparably connected. It was submitted that the ld. CIT(A) had correctly observed the facts of the case which the ld. AO had failed to consider. It was further submitted that in the case of CIT vs. State Bank of India (2008) 300 ITR 425 (SC), the Hon’ble Supreme Court had held that interest paid on provident fund accumulations is an integral part of fund structure and cannot be treated as an inadmissible expenditure. Accordingly, it was prayed that order of the ld. CIT(A) be upheld.

ITA No.461/LKW/2025 A.Y. 2020-21 CPF PICUP TRUST 6. We have duly considered the facts and circumstances of the case. It is fairly clear from the facts that the contribution that is received from the employees and the employer is deposited by the assessee into various interest yielding instruments and interest is paid to the assessee’s on their contributions to the provident fund. Thus, it is clear that there is a clear nexus between the interest that is paid and the interest that is earned. In the circumstances, we cannot find any fault with the decision of the ld. CIT(A) to allow the deduction under section 57(iii) for the interest paid for the employees’/employer’s contribution to the provident fund, from the interest earned on account of investment in interest bearing securities. The appeal of the Revenue is accordingly held to be without merit and dismissed as such. 7. In the result, the appeal of the Department is dismissed. Order pronounced in the open court on 15.05.2026. Sd/- Sd/- [SUDHANSHU SRIVASTAVA] [NIKHIL CHOUDHARY] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 15/05/2026 Sh Copy forwarded to: 1. Appellant – 2. Respondent – 3. CIT DR , ITAT, 4. CIT, 5. The CIT(A) By order Sr. P.S.