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TMI Blog2010 (11) TMI 95X X X X Extracts X X X X X X X X Extracts X X X X ..... ter of the provident dues itself, Section 43B of the Act would be attracted and unless this interest is actually paid the assessee would not be entitled to claim deduction in respect thereof - orders passed by the Tribunal are set aside and the disallowance made by the AO affirmed - 1208/2008 /135/2010/965/2007/958/2007 - - - Dated:- 19-11-2010 - A.K. SIKRI, SURESH KAIT, JJ. Appellant represented by: Mr. Sanjeev Sabharwal, Prem Lata Bansal Respondent represented by: Mr. Rajiv Dutta, Sr. Advocate with Mr. Uday Kumar, Mr. Sanjeev Singh and Mr. Kumar Dushyant A.K. SIKRI, J. 1. Questions of law raised in all these appeals arise in almost similar circumstances. In fact, in three appeals even the assessee is same. It is for this reason all these appeal were heard together and we now proceed to render common judgment. For the sake of convenience, we shall take note of the facts as they appear in ITA No. 1208 of 2008. Following two substantial questions of law were formulated in this appeal: "a) Whether the interest paid on the late payment of the provident fund can partake the character or nature of the provident fund? b) Whether the provisions of Section 43B of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... way of tax, duty, cess or fee, by whatever name called, under any law for the time being in force, b) Any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees, (c) Any sum referred to in clause (ii) of sub-section (1) of section 36, (d) Any sum payable by the assessee as interest on any loan or borrowing from any public financial institution or a state financial corporation or a state industrial investment corporation, in accordance with the terms and conditions of the agreement [ 692c governing such loan or borrowing. (e) Any sum payable by the assessee as interest on any term loan from a scheduled bank in accordance with the terms and conditions of the agreement governing such loan, shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which sum is actually paid by him. Provided that nothing contained in this section shall apply in relati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Explanation 3A : For the removal of doubts, it is hereby declared that where a deduction in respect of any sum referred to in clause (e) of this section is allowed in computing the income referred to in section 28 of the previous year (being a previous year relevant to the assessment year commencing on the 1st day of April, 1996, or any earlier assessment year) in which the liability to pay such sum was incurred by the assessee, the assessee shall not be entitled to any deduction under this section in respect of such sum in computing the income of the previous year in which the sum is actually paid by him. Explanation 4 : For the purposes of this section, - (a) "Public financial institution" shall have the meaning assigned to it in section 4A of the Companies Act, 1956 (1 of 1956); (aa) "Scheduled bank" shall have the meaning assigned to it in clause (ii) of the Explanation to clause (viia) of sub-section (1) of section 36; (b) "State financial corporation" means a financial corporation established under section 3 or section 3A or an institution notified under section 46 of the State Financial Corporations Act, 1951 (63 of 1951); (c) "State industrial investment cor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... permitted to be deducted under diverse heads under Sections 30 to 43C from the income, profits and gains of a business would differ according to the system adopted. This is made clear by defining the word "paid" in Section 43(2), which is used in several Sections 30 to 43C, as meaning actually paid or incurred according to the method of accounting upon the basis on which profits or gains are computed under Section 28/29. That is why in deciding the question as to whether the word "expenditure" in Section 37(1) includes the word "loss" one has to read Section 37(1) with Section 28, Section 29 and Section 145(1). One more principle needs to be kept in mind. Accounts regularly maintained in the course of business are to be taken as correct unless there are strong and sufficient reasons to indicate that they are unreliable. One more aspect needs to be highlighted. Under Section 28(i), one needs to decide the profits and gains of any business which is carried on by the assessee during the previous year. Therefore, one has to take into account stock-in-trade for determination of profits. The 1961 Act makes no provision with regard to valuation of stock. But the ordinary principle of comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g given by the AO stating that the assessee has not complied with the accounting standards." 5. Section 43B of the Act is an exception to the aforesaid Rule where legislature has intended that unless the expenditure is actually defrayed, the payment made deduction is not allowed. Such a provision, which is exception to the general rule, is to be construed strictly. Certain expenditure under certain heads mentioned therein is not allowable as deduction even if it has become due in the relevant assessment year, unless the amount is actually expended. PF dues are one such amount, which qualifies for deduction only on actual payment. However at the same time, Clause (b) of Section 43B of the Act limits it to inter alia "provident fund" and the head "interest" does not mention therein specifically. If one has regard to the aforesaid provision of the Act, the exception contained in Section 43B would relate only to those items, which are specifically mentioned in these provisions. 6. Reading in the aforesaid manner, when the interest paid/payable on delayed consideration of PF is not specifically mentioned in Section 43B of the Act, normally that would not come within the mischief ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that higher rate of interest specified in the Scheme shall not exceed the lending rate of interest charged by any scheduled bank. 14B. Power to recover damages Where an employer makes default in the payment of any contribution to the Fund the Pension Fund or the Insurance Fund or in the transfer of accumulations required to be transferred by him under sub-section (2) of section 15 or sub-section (5) of section 17 or in the payment of any charges payable under any other provision of this Act or of any Scheme or Insurance Scheme or under any of the conditions specified under section 17 the Central Provident Fund Commissioner or such other officer as may authorised by the Central Government by notification in the Official Gazette in this behalf may recover from the employer by way of penalty such damages not exceeding the amount or arrears as may be specified in the Scheme; Provided that before levying and recovering such damages the employer shall be given a reasonable opportunity of being heard : Provided further that the Central Board may reduce or waive the damages levied under this section in relation to an establishment which is a sick industrial company and in res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in reality part and parcel of the liability to pay cess. It was an accretion to the cess. The arrears of cess "carries" interest; if the cess is not paid within the prescribed period a larger sum will become payable as cess. The exact language used by the Court and the context in which it was said is reproduced below: "10. Now the interest payable on an arrear of cess Under Section 3(3) is in reality part and parcel of the liability to pay cess. It is an accretion to the cess. The arrear of cess "carries" interest; if the cess is not paid within the prescribed period a larger sum will become payable as cess. The enlargement of the cess liability is automatic Under Section 3(3). No specific order is necessary in order that the obligation to pay interest should accrue. The liability to pay interest is as certain as the liability to pay cess. As soon as the prescribed date is crossed without payment of the cess, interest begins to accrue. It is not a penalty, for which provisions has been separately made by Section 3(5). Nor is it a penalty within the meaning of Section 4, which provides for a criminal liability and a criminal prosecution. The penalty payable Under Section 3(5) li ..... X X X X Extracts X X X X X X X X Extracts X X X X
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