SPB PROJECTS AND CONSULTANCY LTD.,CHENNAI vs. ITO CORP. WARD 6(1), CHENNAI

Aggrieved by the intimation issued by CPC, assessee preferred appeal before First Appellate Authority. The CIT(A) confirmed additions/adjustments made in the intimation issued u/s.143(1) of the Act.

Aggrieved assessee has filed present appeal before the Tribunal. The assessee has filed a paper book comprising of 114 pages enclosing therein original audit report, revised audit report, balance sheet, profit & loss account, payment details of employees provident fund, intimation issued u/s.143(1) etc. The learned AR submitted that employees contribution to provident fund for April month of 2021 was paid within due date prescribed under Provident Fund Act, hence, entitled to deduction u/s.36(1)(va) of the Act as per the judgement of the Hon’ble Apex Court in the case of Checkmate Services Pvt. Ltd. vs. CIT reported in (2022) 448 ITR 518 (SC) dated 12.10.2022. The learned AR has placed on record payment challans to the provident fund account from pages 90 to 96 of the paper book. The learned AR submitted that adjustment was made u/s.143(1) of the Act only for the reason audit report by inadvertent mistake had shown the payment date as 08.05.2022 instead of actual date of payment i.e. 08.05.2021. As regards the issue whether interest paid u/s.201(1A) of the Act is an allowable deduction u/s.37 of the Act, learned AR relied on Kolkata Bench order of the Tribunal in the case of DCIT Vs.M/s.Narayani Ispate Private Limited in dated 30.08.2017 and Delhi Bench order of the Tribunal in the case of Delhi Cargo Service Center, New Delhi Vs. ACIT in dated 24.03.2023.

The ld.DR supported the order of CIT(A).

We have heard rival submissions and perused the material on record. Two issues are raised in this appeal namely – i) disallowance of employees contribution to provident fund amounting to Rs.1,39,050/- & ii) Interest paid amounting to Rs.10,434/- u/s.201(1A), whether it is to be allowed as deduction or not. We shall adjudicate the above issues as under: Employees Contribution disallowed u/s.36(1)(va) of the Act:- 8. The employees contribution to provident fund amounting to Rs.1,39,050/- was disallowed in the intimation issued u/s.143(1) of the Act for the reason that same has been paid beyond due date prescribed under Provident Fund Act. The due date for payment of employees contribution of Provident Fund Act is on or before 20.05.2021. The adjustment has been made u/s.143(1) of the Act, since tax audit report has shown payment on 08.05.2022. The learned AR had submitted that actual date of payment is on 08.05.2021. The assessee has placed on record (refer pages 90 to 96 of paper book) regarding details of payments made in the EPF account for the month of April, 2021. On perusal of the same, it is seen that amounts have been paid on 08.05.2021 for wages paid in the month of April, 2021. This aspect needs verification by the AO. Therefore, the matter is restored to the files of AO. The AO is directed to examine whether the wages paid for the month of April, 2021, the employees contribution for same has been paid into the Provident Fund account within the due date prescribed under P.F Act. If it is found by the AO that amount has been paid within due date prescribed under respective PF & ESI Act, the same shall be allowed as deduction u/s.36(1)(va) of the Act. It is ordered accordingly. Interest u/s.201(1A) of the Act:- 9. The CIT(A) has confirmed adjustment made u/s.143(1) of the Act by observing as under:- “4.2.1 The contention of appellant has been gone through. The referred decision of the apex court has been gone through. On perusal of the same, it is noticed that the Apex Court has dealt with following issue: "Whether on the facts and in the circumstances of the case, the penalty levied under sections 8(2) and 17(3) of the Madhya Pradesh General Sales Tax Act paid by the assessee is allowable expenditure in the computation of total income?" 4.2.2 It is pertinent to mention here that the impugned disallowance has been made in respect of delay payment of TDS and not in respect of penalty of Sales Tax. Therefore, the case law relied upon by the appellant is not squarely applicable to the instant case and hence no cognizance of the same is taken. Moreover, the tax paid is not any expenditure in relation to the business and therefore it is not allowable. As the principle amount is not allowable, no question arises in respect of interest on the same. Therefore, the action of addition on the instant issue is found correct and hence the addition of Rs. 10,437/- is confirmed”.

The issue of interest paid u/s.201(1A) of Act, whether it is an allowable deduction is covered against the assessee by the judgement of Hon’ble Jurisdictional High Court in the case of CIT Vs. Chennai Properties & Investment Limited reported in (1999) 239 ITR 435 (Mad) dated 20.04.1998. The Hon’ble High Court had held that “when assessee failed to deduct tax at source and remit the same to State and assessee having paid interest u/s.201(1A) of the Act for delayed period, it cannot be claimed as business deduction”. It was further held by the Hon’ble Court that “interest paid takes colour from the nature of principal amount required to be paid, but not paid in time and this principal amount being income-tax, interest is in the nature of direct tax and cannot be regarded as compensatory payment and allowed as business expenditure”. The relevant finding of the Hon’ble Court reads as under:- “15. The counsel for the assessee in support of his submission that the interest paid by the assessee was merely compensatory in character besides relying on the case of Mahalakshmi Sugar Mills Co. (supra) also relied on the decisions of the Apex Court in the cases of Prakash Cotton Mills (P.) Ltd. v. CIT[1993] 201 ITR 684/67 Taxman 546; Malwa Vanaspati & Chemical Co. v. CII[1997] 225 ITR 383 and CIT v. Ahmedabad Cotton Mfg. Co. Ltd. v. CIT[1994] 205 ITR 163. In all those cases, the Court was concerned with an indirect tax payable by the assessee in the course of its business and admissible as business expenditure. Further, liability for interest which had been incurred by the assessee therein was regarded as compensatory in nature and allowable as business expenditure.

The ratio of those cases is not applicable here. Income-tax is not allowable as business expenditure. The amount deducted as tax is not an item of expenditure. The amount not deducted and remitted has the character of tax and has to be remitted to the State and cannot be utilised by the assessee for its own business. The Supreme Court in the case of Bharat Commerce & Industries Ltd. (supra) rejected the argument advanced by the assessee that. retention of money payable to the State as tax or income-tax would augment the capital of the assessee and the expenditure incurred, namely, interest paid for the period of such retention, would assume the character of business expenditure. The Court held that an assessee could not possibly claim that it was borrowing from the State the amounts payable by it as income-tax and utilising the same as capitalization in its business, to contend that the interest paid for the period of delay in payment of tax amounted to a business expenditure.”

The above judgement of the Hon’ble Jurisdictional High Court in the case of CIT Vs. Chennai Properties & Investment Limited (supra) was followed by the Bengaluru Bench of the Tribunal in the case of M/s.Velankani Information Systems Limited Vs DCIT reported in (2018) 173 ITD 19.

In light of aforesaid reasoning and relying on judicial pronouncements cited supra, we reject the second ground raised by the assessee.

In the result, appeal filed by the assessee is partly allowed for statistical purposes. Order pronounced in the open court on 14th March, 2025.