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Facts
The assessee filed appeals against orders concerning disallowance of contributions to PF and ESI. The Assessing Officer added these contributions to the gross total income, claiming they were paid after the due date.
Held
The Tribunal referred to the Hon'ble Apex Court's decision in Checkmate Services Pvt. Ltd. which distinguished between employer's and employee's contributions. The employer's contribution, if paid on time, is deductible, while employee's contribution held in trust must be deposited by the due date.
Key Issues
Whether disallowance of PF/ESI contributions paid after the due date is justified, considering the distinction between employer's and employee's contributions as per Apex Court ruling.
Sections Cited
43B, 40(a)(ia)
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Income Tax Appellate Tribunal, “D” BENCH, AHMEDABAD
Before: DR.BRR KUMAR & SHRI TR SENTHIL KUMAR
O R D E R PER: DR. BRR KUMAR, VICE PRESIDENT: Delay Condoned This appeal has been filed by the Assessee against the separate orders passed by the Ld. Commissioner of Income Tax(Appeal)/National Appeal Centre, Delhi, vide order dated 01.03.2024 & 24.02.2024 passed for the Assessment Years 2020-21 & 2022-23. 2. The Assessee has taken the following grounds of appeal in AY 2020-21
1. Assessing Officer wrongly added the contribution made towards the PF and ESI which is paid in time Rs.1,70,313/- & 1366/Ahd/2024 Asst.Years –2020-21 & 2022-23 - 2–
TDS deducted and paid before the filing income tax return wrongly added income may deleted Rs.1,44,000/-
The Assessee has taken the following grounds of appeal in for AY 2022-23
Provident fund and ESI paid before the due date of filing the return of Income the Assessing Officer has added said expenses in the gross total income the same should be deleted Rs.1,73,390/-
The issue of disallowance on account of late deposit of ESI/PF raised by the assessee in both the appeals have been put to rest by the order of Hon’ble Apex Court in the case of Checkmate Services Pvt. Ltd. Vs. CIT- (2022) 448 ITR 518(SC) vide order dated 12.10.2022 observed that there is a marked distinction between the nature and character of the two amounts viz., the employers' contribution and employees' contribution required to be deposited by the employer. The first one is 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 employees' income and held in trust by the employer. The Hon'ble Apex Court held as under: "
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 & 1366/Ahd/2024 Asst.Years –2020-21 & 2022-23 - 3– 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."
As the issue of payment of employees’ contribution towards the PF has been settled by the judgment of Hon'ble Supreme Court, the identical ground raised by the assessee in both the appeals on this issue stands dismissed.
With regard to the disallowance under section 40(a)(ia) of the Act in A.Y 2020-21, we hereby direct the disallowance be restricted @ 30%. Hence, this ground of appeal of the assessee is partly allowed.
In the result, the appeal of the assessee in for A.Y 2022-23 is dismissed whereas the appeal of the assessee in A.Y 2020-21 is partly allowed.