2025 (7) TMI 1221 - AT - Income Tax

Adjustment as made by CPC - Employees Contribution - Dispute is only with respect to item no.1 for which Ld. AR has drawn our attention to the fact that these contributions were made by the assessee in earlier years and against such contributions the assessee would be eligible to claim deduction u/s 80C - HELD THAT - Deduction u/s 80C was not at all claimed against the contributions which were amply demonstrated from the computation of income of earlier years as placed on record. In such a case Rule 9 of Part A of Fourth Schedule would apply which provide that income tax has to be calculated by adding such contribution to the respective years in which the same has been received assuming that the said fund was not a recognized provided fund which would mean that deduction u/s 80C as claimed in previous years has to be disallowed in such previous years. Since the assessee never claimed the deduction u/s 80C on these contributions the adjustment to that extent deserves to be deleted. The averments of Ld. AR are found to be correct. The assessee has not claimed deduction of these contributions in earlier years. Therefore in terms of stated Rule-9 the adjustment to the extent of Rs. 6.69 Lacs is not justified. Assessee withdrew certain amount from EPF account Interest on Employee Contribution AND Interest on Employee Contribution - The assessee admittedly did not complete qualifying period of 5 years and accordingly these withdrawals become taxable in the hands of the assessee. So far as item nos. 3 4 are concerned the same have already been offered to tax by the assessee in its return of income. So far as item no.2 is concerned it is admitted position that the same is taxable in the hands of the assessee and therefore the adjustment to that extent is justified.

Summary

The ITAT Chandigarh, in appeal for AY 2017-18, addressed the rectification order under section 154 passed by CPC adjusting Rs. 8.27 Lacs related to EPF withdrawal. The assessee had withdrawn Rs. 8,34,372 comprising employees' contribution (Rs. 6,69,000), employer's contribution, and respective interest components. Since the qualifying period of 5 years was not met, the withdrawal was taxable. The interest amounts and employer's contribution were undisputedly taxable and correctly adjusted. The primary dispute concerned the employees' contribution of Rs. 6.69 Lacs. The assessee contended that these contributions were made in earlier years without claiming deduction under section 80C. As per Rule 9 of Part A of the Fourth Schedule, if no deduction under section 80C was claimed previously, the income tax is to be computed by adding the contribution to the respective earlier years, effectively disallowing the deduction retrospectively. Since the assessee never claimed such deduction, the adjustment on this amount was unjustified. The Tribunal held: "Since the assessee never claimed the deduction u/s 80C on these contributions, the adjustment to that extent deserves to be deleted." Consequently, the adjustment of Rs. 6.69 Lacs was deleted, and the AO was directed to recompute income accordingly. The appeal was partly allowed.