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Facts
The assessee filed an appeal against the order of Ld. CIT(Appeals) which confirmed the disallowance made by the AO under Section 143(1) for delayed payment of employee contributions towards PF and ESIC. The disallowance was based on discrepancies between the Tax Audit Report and the Income Tax Return regarding due dates for contributions.
Held
The Tribunal noted the Gujarat High Court's decision in Principal Commissioner of Income-tax vs. Suzlon Energy Ltd., which held that the expression 'within fifteen days of the close of every month' for depositing employee contributions refers to the close of the month for which wages are paid. Consequently, the assessee's argument for no delay was rejected.
Key Issues
Whether the disallowance for delayed deposit of employee's PF and ESIC contribution is justified when the same was paid after the due date as per the Act, even if paid before the return filing date.
Sections Cited
143(1), 36(1)(va), 43B, 2(24)(x), 38
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Income Tax Appellate Tribunal, “D” BENCH, AHMEDABAD
Before: SMT. ANNAPURNA GUPTA & SHRI SIDDHARTHA NAUTIYAL
PER SIDDHARTHA NAUTIYAL - JUDICIAL MEMBER:
Both appeals have been filed by the Assessee against the order passed by the Ld. Commissioner of Income Tax (Appeals), (in short “Ld. CIT(A)”), ADDL/JCIT (A)-1, Lucknow vide orders dated 09.02.2024 & 15.03.2024 passed for A.Y. 2010-20 & 2021-22. 2. The brief facts of the case are that an appeal was filed by the aseessee before Ld. CIT(Appeals), against an order passed under Section 143(1) of the Income Tax Act, 1961 (Act) dated August 8, 2020, for the Assessment Year 2019-20, by the, Central Processing Centre, Bangalore (AO). The aseessee had filed its Income Tax Return for the relevant assessment year on March 3, 2020, declaring a total income of Rs. 1,81,75,290/-. The return was processed on August 8, 2020, and the total income was computed at a figure of Rs.
ITA Nos. 473&706/Ahd/2024 Asst. Years –2019-20 & 2021-22 - 2– 2,18,48,042/-, by making disallowance towards late contribution towards ESI/PF, which led to the filing of the appeal before Ld. CIT(Appeals).
The main issue in the appeal before Ld. CIT(Appeals) was the disallowance of Rs. 36,72,752/- made by the CPC under Section 36(1)(va) of the Act for delayed payments of employee contributions towards PF and ESIC. Upon reviewing the facts, Ld. CIT(Appeals) noted that the disallowance was based on discrepancies between the Tax Audit Report and the Income Tax Return, particularly regarding the due dates for contributions under Section 36(1)(va) of the Act. Ld. CIT(Appeals) noted that the assessee failed to deposit employee contributions to the PF/ESI within the due date, as per the provisions of the Act. The Tax Audit Report highlighted that there was a variance between the prescribed due dates and the actual payment dates, leading to the disallowance under Section 36(1)(va) of the Act. Ld. CIT(Appeals) referred to the judgment of the Hon'ble Supreme Court in the case of Checkmate Services Pvt. Ltd. Vs. Commissioner of Income Tax (2022), which held that the non-payment of employee contributions within the due date would lead to disallowance, irrespective of whether the employer had paid the amount before the return filing date. The amendments made by the Finance Act, 2021, to Section 36 and Section 43B of the Act further clarified the issue, supporting that the provisions related to employee contributions were not subject to the same leeway as employer contributions. Accordingly, Ld. CIT(Appeals) held that the disallowance made by the AO was in accordance with the provisions of the Act and did not merit interference. The appeal was thus dismissed, and the addition made by the ITA Nos. 473&706/Ahd/2024 Asst. Years –2019-20 & 2021-22 - 3–
AO for the delayed payment of employee contributions towards PF/ESIC was upheld.
The assessee is in appeal before us against the order passed by Ld. CIT(Appeals). The assessee has taken the following Grounds of Appeal:
“1. On the facts and circumstances of the case as well as law on the subject, the learened CIT(A) has erred in confirming addition of Rs. 36,72,752/- on account of debatable and contentious issue as prima-facie adjustment u/s 143(1)(a) of the Act.
On the facts and circumstances of the case as well as law on the subject, the learned CIT(A) has erred in confirming addition of Rs. 36,72,752/- on account of delay in payment of employees’ PF and ESIC contribution even when at the relevant time different High Courts have given contradictory judgments.
Appellant craves leave to add, alter or delete any ground(s) either before or in the course of hearing of the appeal.” “1. On the facts and circumstances of the case as well as law on the subject, the learned CIT(A) has erred in confirming addition of Rs. 1,00,35,800/- on account of debatable and contentious issue as prima-facie adjustment 143(1)(a) of the Act.
On the facts and circumstances of the case as well as law on the subject, the learned CIT(A) has erred in confirming addition of Rs. 1,00,35,800/- on account of delay in payment of employees’ PF and ESIC contribution even when at the relevant time different High Courts have given contradictory judgments.
On the facts and circumstances of the case as well as law on the subject, the learned CIT(A) has erred in confirming addition of Rs. 1,00,35,800/- on account of delay in payment of employees’ PF and ESIC contribution without considering the fact that payment is not made to the employees and hence, there is no question of deduction of the sum and in-turn payment under relevant acts.
Appellant craves leave to add, alter or delete any ground(s) either before or in the course of hearing of the appeal.”
Further, the assessee has also taken the following Additional Ground of Appeal:
ITA Nos. 473&706/Ahd/2024 Asst. Years –2019-20 & 2021-22 - 4– “4. On the facts and circumstances of the case as well as law on the subject, the learned CIT(A) has erred in confirming addition of Rs. 36,72,752/- on account of delay in payment of employees’ PF and ESIC contribution without considering the fact that payment is not made to the employees and hence, there is no question of deduction of the sum and in-turn payment under relevant acts.”
Before us, the Counsel for the assessee initially argued that while considering the delay in payment of ESI/ PF, the period of 15 days has to be reckoned from the actual date of payment of salary to the employee and not the close of the month. Viewed from this perspective, there is no delay in contribution of ESI/ PF and no disallowance is called for u/s 36(1)(va) of the Act. However, the Bench confronted the Counsel for the assessee with the decision of the Gujarat High Court in the case of Principal Commissioner of Income-tax vs. Suzlon Energy Ltd. [2020] 115 taxmann.com 340 (Gujarat)/[2020] 423 ITR 608 (Gujarat) vide order dated 11-02-2020, in which Gujarat High Court held that where assessee had not deposited employees' contributions towards PF and ESI within prescribed period in law and Assessing Officer by invoking provisions of section 36(1)(va) read with section 2(24)(x) made addition of aforesaid amount to income of assessee, impugned addition made to income of assessee was justified. Further, in the said decision, the Gujarat High Court held that section 38 of the Employees Provident Funds and Miscellaneous Provisions Act, 1952 makes it obligatory for the employer before paying him his wages to deduct the employee's contribution along with the employer's own contribution as fixed by Government. The employer is further obliged to pay the same within fifteen days of the close of every month pay i.e. such contribution and administrative charges. The reference to fifteen days of the close of the month must be in relation to month during which the payment of wages is to be made and corresponding liability to deduct employee's
ITA Nos. 473&706/Ahd/2024 Asst. Years –2019-20 & 2021-22 - 5– contribution to the fund arises. This Court held that 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.
Thereafter, the Counsel for the assessee submitted that in light of the above decision of Gujarat High Court referred to above, he wishes to withdraw the present appeals and does not wish to argue the matter further.
Therefore, in light of the juri ictional High Court decision in the case of Suzlon supra and the request of the Counsel for the assessee, the appeal of the assessee is dismissed.
Since common facts and issues for consideration are involved for both the years under consideration, both the appeals filed by the assessee are hereby dismissed as withdrawn.
In the result, both the appeals filed by the assessee are dismissed. This Order is pronounced in the Open Court on 25/03/2025 (ANNAPURNA GUPTA) JUDICIAL MEMBER Ahmedabad; Dated 25/03/2025 TANMAY, Sr. PSITA Nos. 473&706/Ahd/2024 Asst. Years –2019-20 & 2021-22 - 6–
आदेश की "ितिलिप अ"ेिषत/Copy of the Order forwarded to : 1. अपीलाथ" / The Appellant
""थ" / The Respondent. संबंिधत आयकर आयु" / Concerned CIT 3. 4. आयकर आयु"(अपील) / The CIT(A)- 5. िवभागीय "ितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad गाड" फाईल / Guard file. 6. आदेशानुसार/ BY ORDER,
उप/सहायक पंजीकार (Dy./Asstt.