- (1.) THE Income-tax Appellate Tribunal has referred the following question under Section 256(1) of the Income-tax Act, 1961, for the opinion of this court : "Whether, on the facts and in the circumstances of the case, the sum of Rs. 19,081 levied as damages due to default in payment of provident fund contribution was an allowable deduction under Section 28(i) and/or Section 37(1) of the Income-tax Act, 1961 ?"
(2.) SECTION 14B of the Employees Provident Funds and Miscellaneous Provisions Act, 1952 (briefly "the Act"), as it stood in the assessment year 1974-75 relevant for the purpose of the case, provides that where an employer makes default in the payment of any contribution to the fund, the Central Provident Fund Commissioner or such other officer as may be 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 of arrears as it may deem fit to impose. The Appellate Tribunal found that the Income-tax Officer disallowed a sum of Rs. 19,081 with the remarks : "Penalty of Rs. 19,081 relevant to previous year and not related to this year under consideration, as the liability has arisen due to negligence or fault on the part of the assessee." The Appellate Tribunal has further held that on appeal the Appellate Assistant Commissioner affirmed the view of the Assessing Officer in the following manner : "However, it is an admitted fact that, the total amount relates to penalty or damages paid by the appellant for various defaults in payment of provident fund contributions. Since the payment is apparently of the nature of penalty or fine, it is not an allowable expenditure. Therefore, the Income-tax Officer was justified in disallowing the assessee's claim."
(3.) THE Appellate Tribunal relying on the decision of this court in the case of CIT v. Swadeshi Cotton Mills Co. Ltd., 1980 121 ITR 747 (I.T. Reference No. 543 of 1977, dated September 14, 1979), held as follows : "We are of the view that the income-tax authorities have rightly disallowed the assessee's claim for deduction of Rs. 19,081." From the order of the Appellate Tribunal it is clear that the claim for deduction made by the assessee was disallowed holding that the amount of Rs. 19,081 was in the nature of penalty.;