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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
Before: SHRI PRASHANT MAHARISHI, AM & SHRI NARENDER KUMAR CHOUDHRY, JM
1. Drishti Lifesaving Pvt. Ltd. Mumbai (assessee /appellant) against the appellate order passed by the National Faceless Appeal Centre, Delhi [learned CIT (A)] for A.Y. 2019-20 on 1st November, 2021, wherein the appeal filed against the assessment order dated 7th May, 2020, passed under section 143 (1) of the Income-tax Act, 1961 (the Act) by the Assistant Director Of Income Tax, Central Processing Centre (learned Assessing Officer), wherein the return filed by the assessee on 22nd October, 2019, showing the business income at ₹235,27,317/- was recomputed at ₹341,13,335/- making disallowance of expenditure indicated in the
Assessee has raised following grounds of appeal: –
I. Adjustment made under section 143(1) on account of payment of Rs.1,05,44,018/- in respect of PF and ESI without following the due process of law may be directed to be deleted.
On the facts and circumstance of the case, first proviso to Section 143 (1) mandates that "no such adjustments shall be made unless an intimation is given to the assessee of such adjustments either in writing or in electronic mode" and, "the response received from the assessee, if any. shall be considered before making any adjustment," The Learned National Faceless Appeal Centre (NFAC) confirmed the view of the Centralized Processing Centre (CPC) without following the provision of the Act, hence, the adjustment/disallowance of PF and ESIC in intimation u/s.143(1) of the Act is not valid which is directed to be deleted.
II. Disallowance / Adjustment of Rs.1,05,44,018/- PF and ESIC payment was made before filing of return may be directed to be deleted.
2. The Learned National Faceless Appeal Centre (NFAC) erred in confirming the disallowance of Rs.1,05,44,018/- on account of PF and ESIC
3. The Learned National Faceless Appeal Centre (NFAC) relied on the newly amended provisions of the section 36(1)(va) and section 43B and held that said delayed payment is not allowable to the appellant, without appreciating that, the disallowance is made for AY 2019-20 (FY 2018- 19). The said newly amended provision is applicable prospectively w.e.f. 01/04/2021, therefore said amendment is not applicable to the appellant, hence disallowance confirmed by the (NFAC) may be deleted.
4. The Learned National Faceless Appeal Centre (NFAC) erred in not following the jurisdictional High Court decision and Tribunal wherein the court held that payment made before due date of filing of filing of return is allowable as deduction.
5. The appellant craves leave to add, amend, alter or delete any of the above grounds of appeal.”
Brief facts of the case shows that assessee is a private limited company engaged in the business of beach safety and lifeguard services. It filed its return of income on 22nd October, 2019 declaring total income of ₹235,27,317/–. The return of the assessee was processed under section 143 (1) of the Act. In the intimation under section 143 (1) of the Act dated 7th May, 2020 sum of ₹105,44,018/– was disallowed, being sum received from employees and not credited to the account of the provident fund authorities before the due date prescribed according to the provident fund Act or respective acts . As
4. Later on, against the decision of the learned CIT (A) the appeal was preferred before the coordinate bench in 30th June, 2022 allowing the appeal of the assessee and the disallowance under section 36 (1)(va) on account of employees contribution to provident fund and ESIC was deleted.
5. Subsequent to that the learned Assessing Officer preferred Miscellaneous Application in MA No. 42/Mum/2023 stating that after the decision of the honorable Supreme Court in case of checkmate services private limited Vs. CIT in Civil Appeal Number 2833 of 2016 dated 12th October, 2022 the order of the coordinate bench allowing the relief of ₹105,44,018/– deleting disallowance under section 36(1)(va) of the Act is erroneous and requires to be rectified. Consequently, MA No. 42/Mum/2023 was decided by the coordinate bench on 25th May, 2023 recalling order passed by the coordinate bench on 30th June, 2022. Therefore, now this is a recalled appeal to be decided.
However, now in view of the decision of honorable Supreme Court in checkmate services private limited versus CIT (2022) for 48 ITR 518, it is now clear that if the employees contribution is not paid before the due date as prescribed under the relevant Provident Fund Act, even if deposited before the due date of filing of income tax return by the assessee, is disallowable, the claim of the assessee is not sustainable.
The learned authorized representative submitted that on the date of filing of the return and passing of the intimation the jurisdictional High Court decision was in favor of the assessee. According to the decision of the honorable jurisdictional High Court in CIT versus Ghatge Patil transport Ltd 368 ITR 749 such deduction was allowable to the assessee if same is deposited before the due date of filing of the return of income. It was further stated that the jurisdictional High Court decision is binding on the revenue. Accordingly, it was submitted that the adjustment made was beyond the scope of section 143 (1) (a) read with section 143 (1) (a) (iv) of the Act and therefore the adjustment is not valid. It was further claimed that the assessing officer has no power to go beyond or behind the return either in allowing or in disallowing any such deduction /allowance or relief. This could be done unless the return of the accompanying documents or account show that the deduction claimed is prime facie i.e. inadmissible, such deduction cannot be disallowed at the intimation stage. He further submitted that if the learned assessing officer requires to make any addition he is bound to follow the procedure
The learned Departmental Representative vehemently supported the order of the learned CIT (A) and the adjustment made by the central processing Centre. He submitted that according to the provisions of section 143 (1) (a) (iv) where the total income or loss computed after making adjustment where the disallowance of the expenditure is indicated in the audit report but not taken into account in computing the total income in the return of income. He submitted that in the tax audit report prepared by the assessee and approved by the auditor categorically shows that that the above payment has been made beyond the due date prescribed. Therefore, the learned assessing officer has picked up that when the payment has been made beyond the due dates as stated in the assessee in its tax audit report itself, the central processing Centre is bound to make the disallowance of such amount because it is not taken into account in computing the total income in the return. This information that such sum is disallowable contained in the tax Audit report available along with return of
We have carefully considered the rival contention and perused the orders of the lower authorities. The fact shows that assessee has filed its return of income on 22/10/2019 wherein the business income was computed at ₹ 23,527,317. In intimation under section 143 (1) of the income tax act dated 7/5/2020 the sum was recomputed at ₹ 34,113,335. According to the statement of the assessee the disallowance is with respect to the payment of ₹ 10,544,018/– being employees contribution of provident fund and ESI deposited beyond the due date prescribed under the provident fund act respective act, but, before the due date of filing of the return of income. According to the provisions of section 36 (1) (va) read with section 2 (24) (x) any sum received by the assessee from his employees as contribution to any provident fund or superannuation fund or any fund set up under the provisions of employees State insurance act, 1948 or any other fund for the welfare of such employees becomes the income of the assessee. Whenever such sum so received is credited by the assessee to the employees account in the relevant fund or funds on or before the due date, such sum is allowable under section 36 (1) (va) of the
However the assessee has raised an issue that on the date of filing of the return and the intimation, the jurisdictional High Court judgment was in favour of the assessee and therefore such adjustment could not have been made by the CPC. We find that according to the provisions of section 143 (1) (a)(iv) the CPC has made adjustment with respect to the disallowable amount indicated by the assessee in the statement of particulars required to be furnished under section 44AB of the income tax act 1961 i.e. form number 3CD. Therefore, the issue does not arise that the jurisdictional High Court judgment was in favour of the assessee at the time of passing of the intimation for the reason that disallowance has already been indicated by the assessee itself. While invoking clause(iv) of 143 (1) (a) the disallowance of such expenditure is indicated by the assessee itself.
The third contention of the assessee that the decision of the honourable Supreme Court in checkmate services private limited versus CIT was rendered in the context where the assessment was framed under section 143 (3) of the act and not under section 143 (1) (a) and therefore the ratio of the said decisions will not be applicable to the facts of the case of the appellant, is also deserves to be rejected at the threshold itself. The honourable Supreme Court decided the issue that if the employees contribution is not deposited within the due date prescribed under the respective provident fund/or other fund, the same is not allowable as deduction under section 36 (1) (va) of the act.
Further with respect to the collection of the employees’ contribution to the provident fund act, the employer is not a trustee but the obligation is cast upon employer deposits such sum as his own dues along with his own contribution. Even otherwise, the employees contribution becomes income of the assessee according to the provisions of section 2 (24) (x) of the act. Such sum is granted as deduction only when it is paid before the due date of respective act in terms of provisions of section 36 (1) (va) of the act.
[B] “Whether on the facts and circumstances of the case and in law, due date for the payment of such contribution arose in the month subsequent to the month in which wages/ salary actually disbursed and therefore the liability to deduct employees' contribution arises only on paying salary to employees?’
Honourable High Court held as under:-
“3. Learned counsel for the appellant would not dispute that the issue of disallowance of late deposited employees' contributions of PF and ESIC stands covered by the Division Bench judgment of this Court in case of Commissioner of Income Tax v. Gujarat State Road Transport Corporation reported in [2014] 366 ITR 170 (Guj). He however raised a slightly different contention which did not arise for consideration before this Court in case of Gujarat State Road Transport Corporation (supra). He submitted that in terms of section 38 of the Employees Provident Funds and Miscellaneous Provisions Act, 1952, reference to the time limit for depositing the contributions within 15 days of close of the month must be to the month in which the salary payment is made. For example, therefore if the salary payment for the month of June is made on 5th July, the employer would have time upto 15th of August for depositing the employee's contribution of provident fund. Looking from
In terms of section 36(1)(va) of the Act, any sum received by the assessee from any of his employees to which the provisions of section 2(24)(x) applies, would be deducted as long as such sum is credited by the assessee to the employee's account in the relevant funds on or before due date. Explanation to the said subsection provides that for the purpose of the said clause, “due date” means a date by which the assessee is required as an employer to credit an employee's contribution to the account in which relevant fund under any Act, rule, order or notification issued there under or under any standing order, award, contract of service or otherwise. section 38 of the Employees Provident Funds and Miscellaneous Provisions Act, 1952, becomes relevant. Subsection (1) thereof reads as under:
“(1) The employer shall, before paying the member his wages in respect of any period or part of period for which contributions are payable, deduct the employee's contribution from his wages which together with his own contribution as well as an administrative charge of such percentage [of the pay (basic wages, dearness allowance, retaining allowance, if any, and cash value of food concessions admissible thereon) for the time being payable to the employees other than an excluded employee, as the Central Government may fix. He shall within fifteen days of the close of every month pay the same to the fund “electronic through internet banking of the State Bank of India or any other Nationalized Bank authorized for collection” on account of contributions and administrative charge]:
“Provided that the Central Provident Fund Commissioner may for reasons to be recorded in writing,
This provision thus requires an employer before paying the employee his wages to deduct the employee's contribution along with the employer's own contribution as fixed by the Government. It is further required that he shall within fifteen days of the close of every month pay the same to the fund such contribution and administrative charges. In terms of this provision thus, after deducting the employee's contribution towards the funds, the same has to be deposited with the Government within fifteen days of the close of every month. Reference to fifteen days of the close of the month must be in relation to the month during which the payment of wages is to be made and corresponding liability to deduct employee's contribution to the fund arises. The expression “within fifteen days of the close of every month” therefore must be interpreted as having reference to the close of the month, for which, the wages are required to be paid with corresponding duty to deduct employee's contribution and to deposit the same in the fund.
Learned counsel for the appellant is therefore not correct in contending that if such wages are paid in the following month, the liability to deposit the employee's contribution to the fund gets differed by another month.”
Further honourable madras High Court in COMMISSIONER OF INCOME-TAX v MADRAS RADIATORS AND PRESSINGS LTD. [2003] 264 ITR 620 (Mad) wherein the second question was as under:-
“2. Whether the Tribunal was right in law in reckoning the date of pay- ment of salary (viz.) seventh of the succeeding month as the The honourable High Court held as under:-
“Thus as seen from the above provisions, it is clear that it is the responsi- bility of the employer to make payment of the contributions at the first instance irrespective of the fact, whether the wages are paid in time or not. Hence the actual payment of wages on the seventh day of the succeeding month would not any way alter the situation and give room for interpreting that the “close of 15th day” has to be calculated from the end of the month in which the wages were actually paid. The payment of wages on the seventh day of the succeeding month would not in any way alter the initial responsi- bility of the employer for making payment of contributions, which he is statu- torily authorised to recover from the employees’ salary, whether the salary is paid in time or not. Hence the one and only reasonable conclusion is that the employer has to remit both the contributions to the provident fund within 15 days from the close of the month for which the employees earned their salary, i.e., salary payable. Our view has been fortified by the Division Bench of this court in Presidency Kid Leather (P.) Ltd. v. Regional Provident Fund Page No : 624 Commissioner [1997] 91 FJR 661, wherein the Division Bench of this court held as follows (page 665) : “As per para. 38 of the Employees’ Provident Funds Scheme, the employer is required to remit both the employees’ as well as the employer’s share of contributions together with administrative charges thereon before the close of the 15th of every month. Para. 30 of the Scheme imposes an obligation on the employer to remit both the shares of contributions in the first instance and para. 32 of the Scheme enables the employer to recover the employees’ contributions from the wages of the employees. The initial responsibility for making payment of the contributions lies on the employer irrespective of the fact whether the wages are paid in time or not. As such, the provident fund payments made after the due date will attract the penal damages under section 14B of the Act.” The Tribunal committed serious error in coming to the contrary conclusion. Hence, the first two questions of law referred to us are answered in the nega- tive, against the assessee and in favour of the Revenue.”
Therefore, as the law is clear and not at all ambiguous, as held by the two honourable high courts, there is no reason to set-aside issue back to the file of the learned assessing officer to take any other due
Appeal of the assessee is dismissed.
Order pronounced in the open court on 14.07. 2023.