BAJAJSONS LTD.,LUDHIANA vs. DCIT, CENTRAL CIRCLE III, LUDHIANA

The Ld. AR filed written submissions and in essence, relied on EPFO Web Circular No.C-1/Misc/2020-21/Vol.I/1112 dated 15-05-2020 directing that delay in deposit of contributions during the period of Covid-19 lockdown could not be attributed to any culpable state of mind and the employers will not attract the provisions of Sec.14B of the EPF Act. Considering the same, Mumbai Tribunal in Diamour Jewels Pvt. Ltd. (ITA No.1965/Mum/2024 dated 25-07-2024) allowed deduction u/s 36(1)(va). The Ld. AR also argued that for computing the period of delay, ‘month’ should be the period in which salary / wages are disbursed by the assessee and not the calendar month. The Ld. AR also argued that the law prevailing on the date of intimation has to be followed without any exception. At the time of intimation, decisions favoring the assessee were prevailing and therefore, the same should have been followed by CPC. The Ld. AR also argued that adequate opportunity of hearing was not granted to the assessee by first appellate authority. Reference was made to the decision of Hon’ble Apex Court in Vatika Township Pvt. Ltd. (SLP(C) No.540 of 2009) laying down the general principles concerning retrospectivity to argue that the decision in Checkmate Services P. Ltd Vs. CIT (2022) 143 Taxmann.com 178 (SC) has changed the legal position since inception which is against general principles concerning retrospectivity. In the alternative, Ld. AR impressed upon the idea that the deduction of employee’s share of ESI / PF would become income of the employer when deducted from salaries / wages at the time of disbursement of salaries / wages to them. The Ld. Sr. DR, on the other hand, stated that this issue stand covered against the assessee by the aforesaid decision of Hon’ble Apex Court.

Indeed, the impugned issue stand covered against the assessee by the decision of Hon’ble Apex Court in the case of Checkmate Services P. Ltd Vs. CIT (2022) 143 Taxmann.com 178 (SC). It has finally been held by Hon’ble Court that there is clear distinction between employer’s contribution which is its primary liability under law [in terms of Section 36(1)(iv)] and its liability to deposit amounts received by it or deducted by it from its employees’ [in terms of Sec. 36(1)(va)]. The former forms part of the employers’ income, and the later retains its character as an income (albeit deemed), by virtue of Section 2(24)(x) and therefore, subjected to conditions spelt out by Explanation to Section 36(1)(va) i.e., depositing such amount received or deducted from the employee on or before the due date. In other words, there is a marked distinction between the nature and character of the two contributions – the employer’s liability is to be paid out of its income whereas the second is deemed to be an income, by definition, since it is the deduction from the employees’ income and held in trust by the employer. This marked distinction has to be borne while interpreting the obligation of every assessee under Section 43B. If the same is not deposited as per mandate of Sec. 36(1)(va), the deduction of the same would not be available to the assessee. Thus, this issue has been decided in favor of the revenue. The law laid down by Hon’ble Court would prevail over all the other decisions favoring the assessee and it is to be construed that the law was always like that since its inception.

Another argument that the due date is to be considered from date of reimbursement of salary / wages could also not be accepted since the contribution is to be deducted every month and the same is payable by 15th of following month with a grace period of 5 days. The deduction or payment of liability does not have any linkage with reimbursements of salaries / wages. Further, this default has been quantified by Tax Auditor in Column No. 20(b) of Tax Audit Report as placed on record wherein the due date of payment and actual date of payment has been specified and each of the default has been identified. This being so, this argument also could not be accepted.

Upon perusal of EPFO Web Circular No.C-1/Misc/2020- 21/Vol.I/1112 dated 15-05-2020, it could be seen that the circular has been issued in the context of Covid-19 Lockdown situation and merely hold that the delay in deposit of contributions could not be attributed to any culpable state of mind and the employers will not attract the provisions of Sec.14B of the EPF Act. The same do not govern the allowability of expenditure under the Income Tax Act and the same is not in the context of impugned deduction under the Act. Therefore, this circular and the cited decision of Mumbai Tribunal do not render any assistance to the case of the assessee.

The assessee has been granted sufficient opportunity of hearing during first appeal as well as during second appeal. Therefore, the argument of lack of opportunity of hearing could also not be accepted.

In the result, the appeal stand dismissed. Order pronounced on 16-05-2025.