2020 (1) TMI 1094 - AT - Income Tax

Delay in deposit of ESI and PF employee s contribution - Addition u/s 2(24)(x) r.w.s. 36(1)(va) - HELD THAT - The contributions have been deposited before filing the return of income. Therefore, respectively, the following the decision of Hon ble Rajasthan High Court in case of CIT vs. JVVNL 2014 (1) TMI 1085 - RAJASTHAN HIGH COURT the addition made by the Assessing Officer is hereby directed to be deleted. - Decided in favour of assessee. Addition u/s 37(1) by disallowing of interest on late payment of TDS - whether such interest is penal in nature or no? - HELD THAT - As decided in M/S SAND PLAST INDIA LIMITED 2018 (7) TMI 1844 - ITAT JAIPUR 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. Therefore, the interest paid under section 201(1A) could not be allowed as business deduction. Contention regarding section 40(a)(ii) is also not tenable as the same is in context of taxes levied on the profits or gains of business and not in context of taxes by way of TDS on payments made by the assessee and in any case, the interest will partake the character of the principal which is not otherwise allowable. Respectfully following the decisions referred supra, interest on late deposit of TDS u/s 201(1A) cannot be allowed to the assessee and the same has rightly been disallowed by the AO. - Decided against assessee.

Summary

Issues:
1. Addition under section 2(24)(x) read with section 36(1)(va) for delay in ESI and PF payment.
2. Disallowance of interest on late TDS payment under section 37(1).

Issue 1 - ESI and PF Payment Delay:
The appeal challenged the addition of ?3,15,533 under section 2(24)(x) and section 36(1)(va) due to delay in ESI and PF employee contributions. The Tribunal referred to the decision of the Rajasthan High Court in CIT vs. JVVNL and others, directing deletion of the addition since the contributions were deposited before filing the income tax return. Consequently, the Tribunal ruled in favor of the assessee on this issue.

Issue 2 - Disallowance of Interest on Late TDS Payment:
The appeal contested the disallowance of ?34,644 as interest on late TDS deposit under section 37(1). The CIT(A) upheld the disallowance, stating that TDS non-deposit is a violation of law, making the interest penal and not deductible. The assessee relied on the Karnataka High Court decision in CIT vs. Oriental Insurance Company Ltd., arguing that interest under section 201(1)(A) is not penal. However, the Tribunal differentiated the case, emphasizing the deductibility of interest on late TDS deposit. Referring to previous judgments, including Ferro Alloys Corporation Ltd vs. CIT and CIT vs. Chennai Properties & Investment Ltd., the Tribunal concluded that interest under section 201(1A) is not allowable as a business deduction. Consequently, the Tribunal dismissed the appeal on this issue, upholding the disallowance of interest on late TDS payment.

In conclusion, the Tribunal partially allowed the appeal concerning the ESI and PF payment delay issue but dismissed the appeal regarding the disallowance of interest on late TDS payment. The order was pronounced on 08/01/2020.