SHIVA INDUSTRIAL SECURITY AGENCY GUJARAT PVT. LTD vs. DEPUTY COMMISSIONER OF INCOME TAX

Facts

The assessee, Shiva Industrial Security Agency Gujarat Pvt. Ltd., filed a Tax Appeal before the Gujarat High Court challenging an order of the Income-tax Appellate Tribunal (ITAT), Surat Bench, dated November 13, 2018. The appeal pertains to Assessment Year 2011-12. The core of the dispute involves the disallowance of certain amounts related to employees' contributions to provident fund and ESI. The assessee is aggrieved by the ITAT's confirmation of these disallowances, which were made under Section 36(1)(va) read with Section 2(24)(x) of the Income Tax Act, 1961. The procedural history indicates that the ITAT upheld the disallowances, leading to the present appeal before the High Court.

Held

The High Court held that both substantial questions of law proposed by the assessee were no longer res integra and were squarely covered by previous decisions of the same court. For the first question concerning the disallowances under Section 36(1)(va) read with Section 2(24)(x), the court referred to its Division Bench decision in Commissioner of Income Tax vs. Gujarat State Road Transport Corporation (2014) 266 ITR 170. For the second question, which dealt with the interpretation of the due date for depositing employees' contributions, the court cited its own decision in M/s Checkmate Facility And Electronic Solutions Pvt. Ltd. vs. Deputy Commissioner of Income Tax (Tax Appeal No.1256 of 2018) decided on October 15, 2018. In that case, the court had interpreted Section 38 of the Employees Provident Funds and Miscellaneous Provisions Act, 1952, stating that the employer must deduct the employee's contribution before paying wages and deposit it within fifteen days of the close of every month. The court clarified that 'close of the month' refers to the month for which wages are paid and the corresponding liability to deduct arises. Therefore, the court found no error in the ITAT's order.

Key Issues

1. Whether, in the facts and circumstances, the ITAT was legally correct in confirming the disallowances of Rs. 31,09,082/- and Rs. 3,08,247/- under Section 36(1)(va) read with Section 2(24)(x) of the Income Tax Act, 1961? 2. Whether, in the facts and circumstances, the ITAT was legally correct in not appreciating that the due date for payment of employees' contribution to the government treasury, as contemplated under the Employees' Provident Funds & Miscellaneous Provisions Act, 1952, and the Employees' State Insurance Act, 1948, should be reckoned from the date of actual salary payment and not its accrual? Assessee's Contentions: The assessee argued that the due date for depositing employees' contributions should be calculated from the date of actual salary payment, not its accrual. They relied on Section 38 of the Employees Provident Funds and Miscellaneous Provisions Act, 1952, suggesting that the 15-day period for deposit should be linked to the month in which wages are paid. Revenue's Contentions: The judgment does not record specific contentions made by the revenue. However, the disallowances confirmed by the ITAT imply that the revenue's position was that the contributions were not deposited within the prescribed due dates, leading to their disallowance as a deduction.