2023 (1) TMI 1124 - AT - Income Tax

Delay in depositing the Employees Contribution to Provident Fund and Employees State Insurance - Addition u/s 43B read with sections 2(24)(x) and 36(1)(va) - HELD THAT - This issue have come to rest by the recent verdict of Checkmate Services Pvt. Ltd. 2022 (10) TMI 617 - SUPREME COURT wherein it has been held that deduction u/s 36(1)(va) in respect of delayed deposit of amount collected towards employees contribution to PF cannot be claimed when deposited within the due date of filing of return even when read with Section 43B of the Income-tax Act,1961 - Decided against assessee. Disallowance in respect of interest on delayed deposit of taxes deducted at source (TDS) - AO observed that such payment of interest on delayed deposit of TDS was not an allowable deduction - HELD THAT - Jurisdictional Calcutta High Court in the case of Martin Harris (P) Ltd 1989 (7) TMI 342 - CALCUTTA HIGH COURT held that the character and quality of interest payable for non- compliance with the provisions of the Act would be the same, whether it is levied for non-submission of return in time or non-payment of tax within the prescribed time or for any other reason and that it cannot be allowed as deduction in computing total income as essentially interest in such a case for non-compliance with the provisions of the Act is inextricably connected with the amount of income-tax. The Hon ble High Court categorically held that where income-tax itself is not a deductible amount, be it compensation or be it penalty, payable in addition to the tax cannot be allowed as a deduction in computing total income. The findings arrived at by the Jurisdictional Calcutta High Court are, otherwise, binding on this Tribunal. In case Checkmate Services Pvt. Ltd. 2022 (10) TMI 617 - SUPREME COURT held that If, such interpretation were to be adopted, the non-obstante clause under Section 43B or anything contained in that provision would not absolve the assessee from its liability to deposit the employee's contribution on or before the due date as a condition for deduction.This proposition laid down by the Hon ble Supreme Court can be well applied in case of delayed deposit of TDS. TDS by deeming fiction has been made the tax liability of the deductor to ensure that the recipient of the payment cannot fade away without paying the due taxes on the income part of such receipts. Once, the deductee pays the due taxes, the deductor is absolved from the said tax liability but not of the interest liability on the delayed payment. Allowing of such interest payment on delayed deposit of TDS as deduction would defeat the very purpose of the TDS provisions ensuring the deduction of taxes from the income of the recipient and the payment/deposit thereof with the central Govt. within the due time. Thus we hold that the interest payment on delayed deposit of Income Tax, whether TDS or otherwise, is not an allowable expenditure. Appeal of the assessee is dismissed.

Summary

Issues Involved:

1. Confirmation of addition made by the Assessing Officer invoking the provisions of section 43B of the Income Tax Act for delay in depositing employees' contributions to Provident Fund and Employees State Insurance.
2. Confirmation of disallowance made by the Assessing Officer in respect of interest on delayed deposit of Taxes deducted at source (TDS).

Issue-Wise Detailed Analysis:

1. Confirmation of Addition under Section 43B for Delay in Depositing Employees' Contributions to Provident Fund and Employees State Insurance:

The assessee contested the addition of Rs.10,10,774 made by the Assessing Officer for the delayed deposit of employees' contributions to Provident Fund and Employees State Insurance, invoking the provisions of section 43B read with sections 2(24)(x) and 36(1)(va). The assessee argued that the deposits were made before the due date of furnishing the return of income, and the amendments made by the Finance Act 2021, which are prospective, should not apply to the Assessment Year 2014-15.

The Tribunal noted that the issue had been settled by the recent verdict of the Hon'ble Supreme Court in Checkmate Services Pvt. Ltd. Vs. CIT (2022) 143 taxmann.com 178 (SC), which held that the deduction under section 36(1)(va) in respect of delayed deposit of employees' contributions to PF cannot be claimed when deposited within the due date of filing of the return, even when read with Section 43B of the Income-tax Act, 1961. The Supreme Court emphasized that the amounts received from employees are held in trust by the employer and must be deposited on or before the due date specified in the relevant enactments. The Tribunal, therefore, dismissed the grounds of appeal related to this issue, following the Supreme Court's decision.

2. Confirmation of Disallowance of Interest on Delayed Deposit of TDS:

The assessee also contested the disallowance of Rs.4,99,022 made by the Assessing Officer for interest on delayed deposit of TDS. The Assessing Officer had observed that such payment of interest on delayed deposit of TDS was not an allowable deduction, and this was confirmed by the CIT(A) based on various High Court and Tribunal decisions.

The Tribunal reviewed the arguments and submissions made by the assessee, which included references to several judgments and the contention that interest on delayed payment of TDS should be considered a business expenditure under section 37 of the Act. The assessee cited the Supreme Court judgment in Harshad Shantilal Mehta, which held that "tax" does not include interest for delayed payment of tax.

However, the Tribunal referred to the provisions of section 201(1A) and section 40(a)(ii) of the Income Tax Act, which imply that interest on delayed deposit of TDS is not a deductible business expenditure. The Tribunal also noted that the character of interest on delayed deposit of TDS is penal in nature and related to the failure to comply with statutory obligations, as supported by various High Court decisions, including those of the Madras High Court in Chennai Properties and Investment Ltd. and the Calcutta High Court in Martin and Harris Pvt. Ltd.

The Tribunal concluded that the interest on delayed deposit of TDS is not an allowable expenditure, as it does not qualify under sections 30 to 37 of the Act and is not incurred wholly and exclusively for the purpose of business or profession. The Tribunal dismissed the appeal on this ground as well.

Conclusion:

The Tribunal dismissed the appeal of the assessee on both grounds, confirming the additions and disallowances made by the Assessing Officer and upheld by the CIT(A). The Tribunal's decision was based on the interpretation of relevant provisions of the Income Tax Act and supported by various judicial precedents.