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Facts
The assessee, an electrical contractor, faced disallowance of employee provident fund (PF) and Employees' State Insurance (ESI) contributions for assessment years 2018-19 and 2019-20 by the AO/CPC under Section 143(1) due to belated payments. The CIT(A) upheld these disallowances, relying on the Supreme Court's decision in Checkmate Services Pvt. Ltd. The assessee challenged the additions, arguing they were made without proper communication under Section 143(1) and that payments were timely in most cases.
Held
The Tribunal affirmed that disallowances for belated PF/ESI contributions are valid adjustments under Section 143(1)(a)(ii) and that the Supreme Court's ruling in Checkmate Services Pvt. Ltd. applies. However, acknowledging the assessee's claim of timely payments in some instances, the Tribunal remitted the matter back to the AO to verify actual payment dates against statutory due dates using the challans provided by the assessee. Additions are to be deleted if timely payment is proven, otherwise sustained.
Key Issues
1. Validity of disallowance of belated employee PF/ESI contributions through a Section 143(1) intimation. 2. Interpretation of the 'due date' for PF/ESI contributions under Section 36(1)(va) and 43B of the IT Act, considering the Supreme Court's ruling. 3. Whether the assessee's evidence of timely payments in certain cases was adequately considered by the lower authorities.
Sections Cited
36(1)(va), 2(24)(x), 43B, 143(1), 143(1)(a), 143(1)(a)(ii), 139(1), 38
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “C” BENCH, KOLKATA
Before: SHRI MANJUNATHA G & SHRI SONJOY SARMA
आदेश / O R D E R Per Manjunatha G, AM: These two appeals filed by the assessee are directed against the separate, but identical orders passed by the ld. Addl/JCIT(A), Gurugram, both dated 13.08.2024 pertaining to assessment years 2018-2019 & 2019- 2020. 2. Since the facts are identical and issues are common, for the sake of conveniences, both appeals were heard together and are being disposed off by this consolidated order. 3. The assessee has more or less raised common grounds of appeal
including modified grounds of appeal in both the assessment years under consideration. From the grounds of appeal filed by the assessee, the only issue that came up for consideration for both assessment years is disallowance of employee's contribution to provident fund and ESI in terms of Section 36(1)(va) read with section 2(24)(x) read with section 43B of the 2. ITANo.1902&1903/Kol/2024 Income-tax Act, 1961 (the Act). Therefore, we deem it not necessary to reproduce the various grounds of appeal filed by the assessee for the sake of brevity.
1. 4. The brief facts of this case are that the assessee is an individual and proprietor concerned, engaged in the business of electrical contractor, filed his return of income for the A.Ys. 2018-19 and 2019-20 under Section 139(1) of the Act. The assessee has filed his return of income for the A.Y. 2018-19 on 08-01-2019, declaring total income of Rs.59,99,460/-. The assessee had also filed his return of income for the A.Y. 2019-20 on 04-09- 2019 declaring total income of Rs.39,90,890/-. The return of income filed for the A.Y. 2018-19 was processed under Section 143(1) of the Act, on 08- 01-2020. Similarly, the return of income filed for A.Y. 2019-20 has been processed on 14-05-2020. The ld. AO/CPC while processing the return of income for both assessment years has disallowed employees contributions of provident fund and ESI for belated payment of contributions to the respective funds on or before the due date provided under the respective Acts in terms of Section 36(1)(va) of the Act read with section 43B of the Act, read with section 22(4)(x) of the Act.
5. Aggrieved, assessee preferred an appeal before the ld. CIT(A) challenging the additions made by the ld. AO towards disallowance of employees contribution to Provident Fund (PF) and ESI under Section 36(1)(va) of the Act, read with section 43B of the Act and argued that additions made by ld. AO in the intimation issued under Section 143(1) of the Act is contrary to law because the AO has not issued a show-cause 3 ITANo.1902&1903/Kol/2024 notice nor given an opportunity before making the adjustment. The assessee further contended that the additions made by the ld. AO under Section 36(1)(va) read with section 43B of the Act, is illegal because the said additions cannot be made in the intimation issued under Section 143(1) of the Act. The assessee had also challenged the additions by filing relevant evidences including copies of challans for payment of PF and ESI and argued that in majority of the cases payment has been made on or before the due date provided under the respective Acts. The ld. CIT(A) after considering various submissions of the assessee and taking note of the tax audit report issued in form number 3CD by the tax auditor, observed that the AO has rightly made disallowances towards employees’ contribution to PF and ESI because the payments have been made to respective funds beyond the due date specified under the Acts and consequently said payments cannot be allowed as deduction under Section 36(1)(va) read with section 43B of the Act. The ld. CIT (A) while confirming the additions made by AO, has relied upon the decision of Hon’ble Supreme Court in case of Checkmate Services Pvt Ltd Vs. CIT [2022] 143 taxmann.com 278 (SC). The ld. CIT(A) had also rejected the legal ground taken by the assessee challenging the adjustment made by the AO in light of non-issue of communication as required under Section 143(1) of the Act and observed that before making adjustments, the AO/CPC had issued communication dated 28.02.2019 for A.Y. 2018-19 and similarly, for A.Y. 2019-20 the AO issued communication on 21-11-2019 and proposed adjustment towards related payment of PF and ESI contribution. Therefore, rejected arguments 4 ITANo.1902&1903/Kol/2024 of the assessee and sustained additions made by AO towards disallowance of PF and ESI 36(1)(va) read with section 43B of the Act for both assessment years. Aggrieved by the CIT(A)’s order, assessee now in appeal before the Tribunal.
The ld. Counsel for the assessee Shri Suvo Chakraborty, submitted that the ld. CIT(A) has erred in sustaining the additions made towards belated payment of PF and ESI in the intimation issued under Section 143(1) of the Act without issuing mandatory communication as required under Section 143(1) of the Act before making any adjustment. The ld. Counsel for the assessee further referring to the decision of ITAT Mumbai Benches in the case of The Master Polishers, passed in order dated 26.04.2023 and the decision of the ITAT Kolkata Benches in the case of Kanoi Paper & Industries Ltd., reported in (2022) 75 TTJ (Cal.), which has subsequently been upheld by the Hon’ble Jurisdictional High Court, submitted that the due date referred to in Section 38 of the PF Act, must be the due date provided u/s.43B of the Act and as per the said section due date to be reckoned from the month in which salary is paid and not from the month for which the salary is due. Since the assessee has paid the salary in the subsequent month and on the basis of the same contributed PF & ESI contribution to the respective funds, on or before the due date, it should be allowed. To this effect, the assessee has furnished the relevant documents, however, the ld.CIT(A) without considering the relevant details simply sustained the additions made by the AO for both the assessment years under consideration. Therefore, it is 5 ITANo.1902&1903/Kol/2024 submitted by the ld. counsel that the addition made by the AO and confirmed by the ld.CIT(A) for both the assessment years under consideration should be deleted.
The ld. DR for the revenue, on the other hand, supported the orders of the authorities below and submitted that the issue is squarely covered in favour of the revenue by the decision of the Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd. (supra), wherein the Hon’ble Apex Court held that the employees contribution to the PF & ESI beyond the due date prescribed under the relevant Acts is not allowable as deduction u/s.36(1)(va) read with section 43B of the Act. Further the ld.CIT(A) had dealt with the objection of the assessee in regard to non-issue of communication before making adjustment and also dealt with the issue of adjustment as provided u/s.143(1) of the Act in the light of the decision of the Hon’ble Supreme Court and held that once law is declared by the Supreme Court, then said law goes back to the date of the provision and accordingly the argument that the adjustment cannot be made towards PF & ESI contribution u/s.143(1) of the Act, is devoid of merit and cannot be accepted.
We have heard both the parties, perused the material on record and gone through the orders of the authorities below. The AO disallowed the employees contribution to PF & ESI u/s.36(1)(va) read with section 43B read with section 2(24)(x) of the Act on the basis of tax audit report issued by the auditor in form 3CD where the auditor has provided the due date for payment of contribution for each month and actual date of contribution for 6 ITANo.1902&1903/Kol/2024 each month in respect of PF & ESI. The assessee has argued the issue on three grounds. The first and foremost argument of the ld. counsel of the assessee is on the issue of non-issue of mandatory communication before making adjustment u/s.143(1) of the Act. We find the ld.CIT(A) has reproduced the communication issued by the AO for both the assessment years before making adjustment u/s.143(1)(a) of the Act and proposed the adjustment towards belated payment of PF & ESI u/s.36(1)(v) of the Act. Therefore, the arguments of counsel for the assessee that the AO has not issued mandatory communication before making adjustment is incorrect and, thus rejected.
The second argument of the ld. counsel for the assessee in the light of the decision of the ITAT Mumbai in the case of The Master Polishers (supra) and the ITAT Kolkata Benches in the case of Kanoi Paper & Industries Ltd. (supra) that the due date referred to under Section 38 of the EPF Act must be the due date provided u/s.43B of the Act and as per the said due date, it is to be reckoned from the month in which salary/remuneration is paid and not from the month for which the salary is due, is also devoid of merit going by the decision of the Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd. (supra), wherein the Hon’ble Apex Court clearly held that the employees contribution to the PF & ESI beyond the due date prescribed under the relevant Act is not allowable deduction u/s.36(1)(va) r.w.s.43B of the Act. In our considered view, when the law is declared by the Supreme Court, then said law goes back to the date of the provision which came into existence in the statute 7 ITANo.1902&1903/Kol/2024 and, therefore, the findings recorded by the coordinate bench of ITAT Mumbai and ITAT Kolkata is contrary to the decision given by the Hon’ble Supreme Court in the case of Checkmate Service Pvt. Ltd and, cannot be accepted.
Further, in our considered view, whether disallowance u/sec.36(1)(va) r.w.s.43B is a debatable issue or a prima facie adjustment which can be made while computing the income or loss in terms of sec.143(1)(a) of the Income Tax Act, 1961, is very clear by the said provisions after amendment by Finance Act, 2016 w.e.f.01.04.2017 where the law has been very clearly stated in so far as various adjustments which can be made while computing income or loss and as per the said amended provisions, any incorrect claim, if such incorrect claim is apparent from any information in the return can be adjusted to the total income or loss. In the present case, the AO-CPC has made adjustment to belated payment of PF/ESI contribution on the basis of tax audit report where the tax auditor has reported actual date of payment with reference to the due date for payment of such contribution and on the basis of the said report, the Assessing Officer has made adjustment. Therefore, in our considered view, the adjustment made by the Assessing Officer towards belated payment of PF and ESI contribution squarely falls under the provisions of sec.143(1)(a)(ii) of the Income Tax Act, 1961. Therefore, in our considered view the arguments of the ld. counsel for the assessee in the light of the above judgment is contrary to law and cannot be accepted.
8 ITANo.1902&1903/Kol/2024 11. Having said so, let us come back to the argument of the ld. counsel for the assessee in the light of due date for payment and actual date of payment for each month towards PF & ESI. The ld.counsel for the assessee submitted relevant evidences including challan for payment of PF & ESI and argued that in few cases or in majority of the cases payment has been actually made on or before the due date provided under the respective Acts and this fact has not been considered by the ld. CIT(A). In our considered view, if the payments has been made on or before the due date provided under the respective Acts, then the same should be allowed as deduction u/s.36(1)(va) r.w.s.43B r.w.s.2(24)(x) of the Act. Since there are contradictory views from the point of assessing officer and from the point of the assessee, in our considered view, the matter needs to be remitted back to the AO for limited purpose for examining the actual date of payment and due date for payment in respect of the employees contribution to PF & ESI for the relevant period. Thus, we set aside the orders of the ld.CIT(A) for both the assessment years under consideration and remit the issue to the file of ld.AO with a direction to examine the claim of the assessee in the light of the relevant challans, if any, may be furnished to prove his contention that in few cases or in majority of the cases payment has been actually made on or before the due date provided under the respective Acts. In case, the assessee is able to prove its case, then the AO is directed to delete the addition for both the assessment years under consideration to the extent payment has been made on or before the due date. In case, the assessee is not able to prove the same, the addition made by the AO