M/S. IV SANCTUM,BENGALURU vs. ADDITIONAL DIRECTOR OF INCOME TAX, CPC, BENGALURU

The only issue that arises for consideration in this appeal is as to whether the Revenue authorities were justified in making a disallowance on delayed payment of employee’s contribution to ESI and PF of Rs.4,94,192/- made by the assessee beyond the due date by invoking the provisions of section 36(1)(va) of the Income Tax Act, 1961 (hereinafter called ‘the Act’).

On the above issue, it is not disputed that as per the decision of the Hon’ble Supreme Court rendered in the case of CHECKMATE SERVICES PVT LTD VS CIT-1 in CIVIL APPEAL 2833/2016 vide its judgment dated 12 October 2022 decided the issue on allowability/treatment of ‘delayed’ Employee PF Contribution payment in hands of assessee under provisions of Income Tax Act and held that Section 36(1)(va) and Section 43B(b) operate on totally different equilibriums and have different parameters for due dates, i.e., employee's contribution is linked to payment before the due dates specified in the respective Acts and employer's contribution is linked to payment before the due dates specified in the respective Acts and employer's contribution is linked to the payment before the prescribed due date for filing of return u/s. 139(1) of Income Tax Act, 1961.The result of any failure to pay within the prescribed dates also leads to different results. In the case of employee's contribution, any failure to pay within the prescribed due date under the respective PF Act or Scheme will result in negating employer's claim for deduction permanently forever u/s.36(1)(va). On the other hand, delay in payment of employer's contribution is visited with deferment of deduction on payment basis u/s.43B and is therefore not lost totally. Therefore as per the above decision, the disallowance made by the Revenue authorities were fully justified.

Learned Counsel for the assessee however submitted that in the intimation issued under section143(1) of the Act, on 1.5.2020 the aforesaid disallowance was made and therefore one has to examine as to whether it was within the powers of the Revenue authorities to make the disallowance while electronically processing the return of income under section 143(1)(a) of the Act. Learned Counsel for the assessee firstly pointed out that as per the proviso to section 143(1)(a) of the Act, any adjustment has to be made only after due intimation to the assessee. Learned Counsel for the assessee brought to our notice that in the intimation under section 143(1) of the Act, dated 1.5.2020, it has been mentioned that there was a communication sent by email to the assessee before making the impugned disallowance and it is further mentioned therein “that as there has been no response/the response given is not acceptable the adjustment(s) as mentioned below are being made to the total income as per the provisions of Section 143(1)(a).

Learned Counsel for the assessee submitted that it is not clear from the aforesaid wordings in the intimation as to whether the response of the assessee to the impugned disallowance was considered or not. Factually, the details of notice issued by Centralized Processsing Centre (CPC) while electronically processing the Assessee’s return was that the Assessee filed revised return on 11.10.2019. CPC sent proposal for disallowing delay payment of employees contribution to ESI/PF dated 27.2.2020. Assessee sent response to the same dated 29.2.2020. Intimation was issued on 1.5.2020.

It is clear from the intimation under section 143(1) of the Act dated 1.5.2020 that the disallowance has been made on the basis of audit report in Form 3CD wherein the fact that employees contribution was paid beyond the date of ESI and PF and hence not allowable as deduction under section 36(1)(va) of the Act has been clearly mentioned. The mere fact that the wordings “as there has been no response”, in the intimation referred to earlier has not been struck off, it cannot be presumed that the reply of the assessee dated 29.2.2020 has not been considered while issuing the intimation under section 143(1) of the Act.

In the facts and circumstances of the given case, we are of the view that the disallowance under section 143(1)(a) of the Act is valid in view of the decision made by Hon’ble Supreme Court in the case of Checkmate services (supra). The assessee will not be entitled to deduction of belated payment of ESI and PF of employees’ share of contribution as per the provision to section 36(1)(va) of the Act. We find no merits in this appeal and accordingly appeal filed by the assessee is dismissed.

In the result, appeal of the assessee is dismissed.