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Facts
The assessee's appeal for AY 2019-20 arose from an order confirming the disallowance of late payment of Employees' Contribution to PF/ESI. The intimation was issued by CPC under Section 143(1) on 03-06-2020, disallowing the deduction under Section 43B read with Section 36(1)(va) and Section 2(24)(x).
Held
The Tribunal held that the Hon'ble Apex Court in the case of Checkmate Services P. Ltd. Vs. CIT (2022) has clarified the distinction between employer's contribution and employee's contribution. The latter, if deducted and not deposited by the due date, becomes income of the employer and deduction is not allowed.
Key Issues
Whether late payment of employees' contribution to PF/ESI, deducted from salaries, is an allowable deduction under Section 43B read with Section 36(1)(va) if not deposited by the due date.
Sections Cited
143(1), 43B, 36(1)(va), 2(24)(x), 36(1)(iv)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘A’ BENCH, CHANDIGARH
Before: HON’BLE SHRI LALIET KUMAR, JM & HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM
(िनधा�रणवष� / Assessment Year: 2019-20) M/s Emson Gears Ltd. DCIT, Circle I, बनाम/ Vs. D-42, Phase V, Focal Point, Ludhiana. Dhandari Kalan, Punjab. 141010 �थायीलेखासं./जीआइआरसं./PAN/GIR No. AAACE-3697-E (अपीलाथ�/Appellant) : (��थ� / Respondent) अपीलाथ�कीओरसे/ Appellant by : Sh. Sarabjit Garg (CA) – Ld. AR ��थ�कीओरसे/Respondent by : Sh. Vivek Vardhan (Addl. CIT) – Ld. Sr. DR सुनवाईकीतारीख/Date of Hearing : 22-04-2025 घोषणाकीतारीख /Date of Pronouncement : 25-04-2025 आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by assessee for Assessment Year (AY) 2019-20 arises out of an order of learned Addl. / Joint Commissioner of Income Tax-2, Mumbai [CIT(A)] dated 27-09-2023 in the matter of an intimation issued by CPC u/s 143(1) on 03-06-2020 disallowing late payment of Employees’ Contribution to PF / ESI in terms of Sec.43B r.w.s. 36(1)(va) as well as Sec.2(24)(x). The Ld. CIT(A) confirmed the same, inter-alia, by relying upon the decision of Hon’ble Apex Court in the case of Checkmate Services P. Ltd Vs. CIT (2022) 143 Taxmann.com 178 (SC). Aggrieved, the assessee is in further appeal before us. The registry has noted delay of 201 days in the appeal which stand condoned.
The Ld. AR filed written submissions and in essence, contended that the return was processed u/s 143(1) on 03-06-2020 and on that date, the return should have been processed as per law laid down by various High Courts on 03-06-2020 when this issue stood covered in assessee’s favor. To support the same, Ld. AR made reference to decision of Hon’ble Apex Court in Vatika Township Pvt. Ltd. (SLP(C) No.540 of 2009) laying down the general principles concerning retrospectivity. However, 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.
In the result, the appeal stand dismissed. Order pronounced on 25-04-2025 Sd/- Sd/- (LALIET KUMAR) (MANOJ KUMAR AGGARWAL) JUDICIAL MEMBER लेखा सद� /ACCOUNTANT MEMBER Dated : 25-04-2025. आदेश की �ितिलिप अ�ेिषत / Copy of the Order forwarded to : 1. अपीलाथ�/Appellant 2. ��थ�/Respondent 3. आयकरआयु�/CIT 4. िवभागीय�ितिनिध/DR 5. गाड�फाईल/GF ASSISTANT REGISTRAR
ITAT CHANDIGARH