2017 (3) TMI 579 - AT - Income Tax

TDS u/s 192 from salary - short deduction of tds - orders passed u/s. 201(1) and 201(1A) - while computing taxable salary, the assessees were deducting u/s. 80C and interest accrued on employees contribution to unrecognized Provident fund is also taxable under the head Income from other sources - Held that - In the instant case, the Assistant Commissioner of Provident Fund very categorically states that the Provident Fund of the assessees is not established as per the scheme framed under the Employees Provident Funds Act, 1952. Assessee also does not have case that its PF is established under a scheme framed under the Employees Provident Fund Act, 1952 (19 of 1952). That being the case, admittedly, the assessees contributions to the Provident Fund are not recognized Provident Fund u/s. 2(38) of the Act and the contributions are not entitled to deduction u/s. 80C (2)(vi) of the I.T. Act. If the contributions are not eligible for deduction u/s. 80C of the Act, there are resultant short deductions of tax u/s. 192 of the Act. Consequently, the interest accrued on the Provident Fund is also liable to be taxed as Income from other sources . Section 192(1) of the Income Tax Act makes abundantly clear that the employees are bound to deduct tax at source at the time of payment of salaries. Since admittedly, the contributions of the assessees to the Provident Fund are not a recognized Fund, the same are not eligible for deduction u/s. 80C (2) (vi) of the I.T. Act. Therefore, the estimations made by the assessees are not correct and since there were short deductions of tax, the Assessing Officer had rightly passed the orders u/s. 201(1) and 201(1A) of the I.T. Act. Also the assessees were not able to show that any of the employees of the assessee-society had filed returns and had paid tax correctly to the Government account. Therefore, the case laws relied on by the assessees cannot come to their aid. Further, the order passed by the Delhi Bench of the Tribunal in the case of DCIT vs. HCL Infosystems Ltd. (2004 (6) TMI 279 - ITAT DELHI-D) relied on by the assessees is of no help since in the instant case it cannot be stated that assessee s estimation is bonafide or honest estimation of salary income of its employees. Admittedly, the contributions made by the assessees to the Provident Fund were not a recognized Fund and were not eligible for deduction u/s. 80C of the Act which had resulted in short deductions of tax. - Decided against assessee

Summary

Issues:
Appeals against orders of CIT(A) under sections 201(1) and 201(1A) of the I.T. Act regarding short deductions of tax on salaries u/s. 192 due to unrecognized Provident Fund contributions.

Analysis:
The case involved appeals by two assessees against CIT(A) orders concerning short tax deductions on salaries due to contributions to unrecognized Provident Fund for assessment years 2007-08 and 2008-09 under sections 201(1) and 201(1A) of the I.T. Act. The assessees claimed deductions u/s. 80C for Provident Fund contributions, leading to short deductions as per the Assessing Officer. The CIT(A) dismissed the appeals after detailed analysis, prompting the assessees to appeal before the Tribunal.

The main contention revolved around whether the contributions to the Provident Fund were eligible for deduction u/s. 80C. The Assessing Officer held that since the Fund was not recognized u/s. 2(38) of the Act, the deductions were incorrect, resulting in short deductions u/s. 192. Additionally, interest on the Fund was deemed taxable under 'Income from other sources'. The Tribunal analyzed sections 80C(2)(vi), 2(38), and 192 of the Act to determine the eligibility of the Provident Fund contributions for deduction.

The Tribunal noted that the assessees' Provident Fund contributions were not recognized under the Act, as confirmed by the Assistant Commissioner of Provident Fund. Since the Fund was not established under the Employees Provident Fund Act, the contributions were not entitled to deduction u/s. 80C. As a result, there were short deductions of tax u/s. 192, and the interest accrued on the Fund was taxable. The Tribunal emphasized the necessity for correct estimations in tax deductions under section 192(1) of the Act.

The Tribunal rejected the assessees' arguments based on case laws and upheld the Assessing Officer's orders under sections 201(1) and 201(1A) due to the incorrect estimations of Provident Fund contributions. The Tribunal highlighted the importance of employees deducting tax at source and dismissed the appeals, citing the lack of bonafide or honest estimations by the assessees.

In conclusion, the Tribunal dismissed the appeals, emphasizing the importance of accurate tax deductions and the ineligibility of unrecognized Provident Fund contributions for deductions u/s. 80C, leading to short deductions and tax liability under sections 201(1) and 201(1A) of the I.T. Act.