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Facts
The assessee deposited employees' contributions to PF and ESI after the prescribed due dates but before the return filing date. The AO disallowed these amounts. The NFAC upheld the disallowance.
Held
The tribunal noted the Supreme Court's decision in Checkmate Services Pvt. Ltd, which held that employee contributions deducted must be deposited by the due date for deductibility. However, the tribunal found that the methodology for determining the due date was a factual issue requiring verification.
Key Issues
Whether the due date for depositing employee contributions for PF/ESIC should be reckoned from the salary month or the disbursement month, and if the disallowance made by the AO for late deposit is justified.
Sections Cited
143(1), 154, 36(1)(iv), 36(1)(va), 2(24)(x), 43B
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Income Tax Appellate Tribunal, DELHI BENCH “B”: NEW DELHI
Before: SHRI M. BALAGANESH & SHRI YOGESH KUMAR U.S.
O R D E R PER M. BALAGANESH, A. M.: 1. The appeal in AY 2020-21, arises out of the order of the National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘ld. NFAC’, in short] in Appeal No. ITBA/NFAC/S/250/2024-25/1070945761(1) dated 06.12.2024 against the order of assessment passed u/s s 143(1) r.w.s 154 of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 26.10.2022 by the Assessing Officer, ITO, DEL-Ward-36(91) (hereinafter referred to as ‘ld. AO’).
Though the assessee has raised several grounds, the only effective issue to be decided in this appeal is as to whether the ld NFAC was justified in upholding the disallowances made on account of employees contribution to Provident Fund (PF)/ Employee State Insurance (ESI) in the facts and circumstances of the case.
We have heard the rival submissions and perused the materials available on record. At the outset, it is submitted by the ld AR that it is not in dispute that the employees’ contribution to PF and ESI were deposited by the assessee to the Government account beyond the due dates prescribed under the respective acts but well before the date of filing the return of income. We find that the recent decision of the Hon'ble Supreme Court in the case of Checkmate Services Pvt. Ltd Vs. CIT reported 448 ITR 518 had settled the entire dispute to rest by deciding it in favour of the revenue by observing as under:-
“53. The distinction between an employer’s contribution which is its primary liability under law – in terms of Section 36(1)(iv), and its liability to deposit amounts received by it or deducted by it (Section 36(1)(va)) is, thus crucial. The former forms part of the employers’ income, and the later retains its character as an income (albeit deemed), by virtue of Section 2(24)(x) - unless the conditions spelt by Explanation to Section 36(1)(va) are satisfied i.e., depositing such amount received or deducted from the employee on or before the due date. In other words, there is a marked distinction between the nature and character of the two amounts – the employer’s liability is to be paid out of its income whereas the second is deemed an income, by definition, since it is the deduction from the employees’ income and held in trust by the employer. This marked distinction has to be borne while interpreting the obligation of every assessee under Section 43B.
In the opinion of this Court, the reasoning in the impugned judgment that the non-obstante clause would not in any manner dilute or override the employer’s obligation to deposit the amounts retained by it or deducted by it from the employee’s income, unless the condition that it is deposited on or before the due date, is correct and justified. The non-obstante clause has to be understood in the context of the entire provision of Section 43B which is to ensure timely payment before the returns are filed, of certain liabilities which are to be borne by the assessee in the form of tax, interest payment and other statutory liability. In the case of these liabilities, what constitutes the due date is defined by the statute. Nevertheless, the assessees are given some leeway in that as long as deposits are made beyond the due date, but before the date of filing the return, the deduction is allowed. That, however, cannot apply in the case of amounts which are held in trust, as it is in the case of employees’ contributions- which are deducted from their income. They are not part of the assessee employer’s income, nor are they heads of deduction per se in the form of statutory pay out. They are others’ income, monies, only deemed to be income, with the object of ensuring that they are paid within the due date specified in the particular law. They have to be deposited in terms of such welfare enactments. It is upon deposit, in terms of those enactments and on or before the due dates mandated by such concerned law, that the amount which is otherwise retained, and deemed an income, is treated as a deduction. Thus, it is an essential condition for the deduction that such amounts are deposited on or before the due date. 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.
In the light of the above reasoning, this court is of the opinion that there is no infirmity in the approach of the impugned judgment. The decisions of the other High Courts, holding to the contrary, do not lay down the correct law. For these reasons, this court does not find any reason to interfere with the impugned judgment. The appeals are accordingly dismissed.”
The ld. AR submitted that the deposit of employees’ contribution should be reckoned from the month in which the salary has been actually disbursed rather than the month for which the salary relates. For instance, the salary for the month of April, 2020 has been paid in the month of May 2020 and therefore, due date for deposit of employees contribution to PF/ESIC should be reckoned from May 2020 and consequently the due date should be recorded as 15.06.2020. Once, this methodology is adopted then there would no delay in deposit of the employees’ contribution towards ESIC as well as PF for most of the months. In our considered opinion, this matter requires factual verification by the Learned AO. Hence we deem it fit and appropriate, in the interest of justice and fair play to remit this matter to the file of Learned AO for denovo adjudication in accordance with law having regard to the observations made by the Delhi Tribunal in the case of Sentinel Consultants P. Ltd in & 8 / Del/ 2023 for Assessment Years 2018-19 and 2019-20 dated 12-6-2023 reported in 202 ITD 154 (Del Trib) and also in the light of decision of Hon’ble Supreme Court in the case of Checkmate Services referred supra. Needless to mention that the assessee be given reasonable opportunity of being heard.
In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the open court on 14/05/2025.