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Facts
The assessee, Ethos Limited, filed its return of income which was processed under Section 143(1) of the Income Tax Act, 1961. Additions were made concerning delayed deposit of ESI/PF contributions and cessation of a trading liability. The CIT(A) upheld these additions.
Held
The Tribunal held that the delay in depositing ESI/PF contributions during the COVID-19 pandemic period was condoned by the EPFO and was not a ground for disallowance. The issue of cessation of trading liability was remanded to the AO for verification to avoid double taxation.
Key Issues
Whether delayed deposit of ESI/PF contributions during the COVID-19 pandemic can be disallowed? Whether an addition for cessation of trading liability, already offered to tax, leads to double taxation?
Sections Cited
250, 143(1), 36(1)(va), 41, 43B, 6G(3)
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Income Tax Appellate Tribunal, CHANDIGARH BENCHE A’, CHANDIGARH.
Before: SH. RAJPAL YADAV, HON’BLE VICE- & SH. KRINWANT SAHAY, HON’BLE
ORDER Per: KRINWANT SAHAY, AM: The instant appeal of the assessee is directed against the order of the ld. Addl. Commissioner of Income Tax (Appeals)-Madurai, passed u/s 250 of the Income Tax Act 1961, dated 21.06.2024 for A.Y. 2021-22.
The grounds taken by the assessee are as under:
1. That on the facts, circumstances and legal position of the case, Worthy CIT(A), in Appeal No. NFAC/2020-21/10170586 has erred in passing order dtd. 21.06.2024 in contravention of provisions of S. 250 of the Income Tax Act, 1961 (hereinafter referred to as
2. That on facts, circumstances and legal position of the case, the Worthy CIT(A) has erred in upholding the intimation order passed by Ld. AO(CPC) by making the addition of Rs. 18,73,058/ u/s 36(1)(va) of the Act as the Ld. AO lacked powers to carry out such adjustment while passing order u/s 143(1).
That on facts, circumstances and legal position of the case, the Learned Commissioner of Income Tax (Appeals) [CIT(A)] has erred in upholding the addition of 218,73,058/ made by the Assessing Officer under Section 36(1)(va) of the Income Tax Act, 1961, on account of the delayed deposit of employees' contributions to Provident Fund (PF) and Employees' State Insurance (ESI). While these contributions were remitted after the respective statutory due dates under the labour laws, they were deposited within the extended timelines provided by the Employees' Provident Fund Organisation (EPFO), which acknowledged the exceptional circumstances and disruptions caused by the COVID-19 pandemic. Given these uncontested facts, and in light the fact that deposits made within the extended timelines provided by the Employees' Provident Fund Organisation (EPFO) should not be disallowed, the addition under Section 36(1)(va) is unwarranted and inequitable, and should therefore be set aside.
4. That on facts, circumstances and legal position of the case, the Learned Commissioner of Income Tax (Appeals) [CIT(A)] has erred in law and on facts by remanding the matter to the Assessing Officer regarding the addition of 27,39,787/- under Section 41 of the Income Tax Act, 1961. The remand was predicated on a perceived inconsistency between the profit chargeable to tax under Section 41 as reported in the Income Tax Return and the audit report.
5. That on facts, circumstances and legal position of the case, the Learned Commissioner of Income Tax (Appeals) [CIT(A)] has erred in applying sub-rule (3) of Rule 6G of the Income Tax Rules, 1962, which is inapplicable to the present case.
That on facts, circumstances and legal position of the case, the impugned order passed by the Ld. AO and then by Worthy CIT(A) deserves to be quashed since the same have been passed without affording reasonable opportunity of being heard to the appellant.
That the appellant craves leave for any addition, deletion or amendment in the grounds of appeal
on or before the disposal of the same.”
3. Brief facts of the case, as filed in the written submission of the counsel of the assessee are as under:
“Facts of the Case:
1. 1. The appellant is a Company.
2. The return for the year under reference was filed on 15.03.2022 by the appellant declaring income for the year at Rs. 9,92,93,920/-.
3. This was processed u/s 143(1), wherein the additions on 3 issues were made. The same is as under: a. ESI/PF (Employees' Contribution) of Rs. 18,73,058/- deposited later than the due date prescribed under relevant labour laws but well before the due date of filing of ITR. In fact, the delay was only due to the spread of Covid at the relevant time, and The Employees' Provident Fund Organisation (Ministry of Labour and Employment, The Government of India) had waived the interest and penalty for late deposit of ESI/PF under those labour laws, which meant that the delay had been condoned by those labour laws. If the said extension is taken into consideration due to Covid, there is actually no delay even under those labour laws; hence, no addition was warranted. On top of this, another grievance of the appellant is that before passing the impugned order u/s 143(1), Ld. AO (CPC) issue a Show Cause Notice (SCN). But in that SCN, this issue of proposed adjustment u/s 36(1)(va) was not at all there, and this came up directly in the impugned order. b. Another addition of Rs. 7,39,787/- was made u/s 41 by comparing the figures in the relevant column of ITR with that reported by the Tax Auditor. But the submission of the assessee that the relevant item is already shown in their Income Tax Return under the head "Provision/liabilities no longer required written back of Serial No 14 (XI) of the Part A-P& L Ind-AS of ITR-6 and paid taxes thereon. c. Another addition of Rs. 3,201/ has been made u/s 43B. After knowing the fact, the appellant company already paid this amount.
Being aggrieved against the above, this appeal is being preferred.”
4. Assessee’s appeal on ground no. 1, is against the confirmation of addition of Rs.18,73,058/- made u/s 36(1)(va) as already discussed above this addition was made by the CPC while processing the return u/s 143(1) on the basis that contribution of ESI and PF in the government account was made beyond the prescribed time limit.
4.1 It was done by the CPC on the basis of the audit report filed by the assessee along with the return of income on this issue the ld. CIT(A) in his appeal order has given findings as under:
“5.13 From AY 2021-22 onwards the appellant is provided with an opportunity to correct the mistake in audit report after it receives intimation from CPC regarding the mistake committed. The appellant had an opportunity to file revised audit report and correct the mistake but has not done this. The appellant has not produced any evidence in this appellate proceedings that the dated reported by the auditors are wrong. Hence this ground is not valid and are dismissed.” 4.2 During proceedings before us the assessee brought it to the notice of the bench that during this period when the payment of PF and ESI was delayed the period of peak covid.
4.3 The counsel of the assessee has also brought on record the orders of the Mumbai Tribunal on the same issue in the case of Diamour Jewels Pvt. Ltd. In dated 25.07.2024, in this case law, the Mumbai Bench of ITAT has discussed in detailed the decision of Hon’ble Supreme Court in the case of Checkmate Services (P) Ltd. Vs. CIT (2022) 143 taxmann.com 178 (SC), the tribunal has also discussed the Circular dated 15.05.2020 (Circular No. C- 1/Misc/2020-21/Vol.1/1112. The circular was issued by the office of the Additional COPFC (Headquarter ) compliance and legal with the approval of the Central PF Commissioner on the subject relief to establishments and factories covered in EPF and MP Act, 1952 from levy of penal damages for delay in deposit of dues during lock down to prevent Covid. The counsel has also brought on record another order passed by the ITAT of Delhi Bench in the case of Cargo Construction Company Pvt. Ltd. in dated 14.01.2025 in which it has been categorically held as under:
In the present case before us, in the given peculiar fact pattern and circumstance when the EPF Organisation itself has waived off the levy of penal damages for delayed payment during the period of lockdown by issuing the aforesaid circular, there is DO question of treating the delay which occurred during the period of lockdown detrimental to the assessee under the Act, more specifically under the explanation to section 36[1](vo) of the Act. The delay in deposit of PF and ESI of the employees' share is for the month of April 2020 and May 2020. These months fell in the period of lockdown when pandemic of COVID-19 was at its peak. Due dates to deposit for these two months were 15.05 2020 and 15.06.2020 as per the relevant enactments. Assessee deposited the delayed amount in the month of June 2020 when there was relaxation in the lockdown and banking was permitted. There is no mischief on the part of the assessee in holding the employees contribution for long periods as contemplated in the memorandum explaining the provisions introduced in the Finance Bill, 1987 and CBDT circular (supra) and dealt by the Hon'ble Supreme Court in Checkmate Services (supra). In fact, assessee demonstrated its vigilance in depositing the impugned amounts at the first opportunity it got when the relaxation was given in the lockdown. Lockdown.
We have considered the facts given by the ld. CIT(A) in his appellate order and the argument of the counsel of the assessee as well as the written submission filed by him during proceedings before us. We find that despite the fact that the Hon’ble Supreme Court has given a very clear and categorical findings in the case of Checkmate Services P. Ltd. (supra) the Hon’ble Apex Court has also gone into the element of the intention of the assessee in delaying the payment of ESI and PF into government account beyond the due date. Here, in this case, the delay ranges from 1 day to 1 month and that also during the period of peak Covid when the entire country was under complete lock down so in our considered opinion the assessee has got benefit of this account.
6. The ld. DR relied on the order of the ld. CIT(A) as the assessee has deposited both PF and ESI in the government account immediately after the resumption of work by the banks after lockdown therefore in our opinion the assessee is not to be penalised and addition thus made u/s 36(1)(va) made by the CPC while pressing the return of income u/s 143(1) and the confirmation of the same addition by the ld. CIT(A) is accordingly deleted.
7. Ground No.2, is against the addition of Rs.7,39,787/- u/s 41 by comparing the figures of the relevant column of ITR with that reported by the Tax Auditor. The ld. CIT(A) in his appellate order has given findings on this issue as under:
“During the year in question, the Tax auditor, in Clause 25, has disclosed the fact about remission or cessation of certain trading liability of Rs. 7,39,787/- that should be included in the taxable income of the assessee. Considering the same, while filling ITR, the assessee has added this amount in its ITR under the head "Provision/liabilities no longer required written back" of Serial No. 14 (XI) of the Part A-P&L Ind-AS of ITR-6 and paid taxes thereon. The relevant page of the ITR form showing the amount included in its taxable income is appended herewith on page no.
The above-said fact was disclosed to the Ld. AO in reply LO the SCN. However, without considering it, Ld. AO made the impugned addition of Rs. 7,39,787/- by alleging that there is an inconsistency in the amount of profit chargeable to tax under section 41 specified in the return and the audit report. The above addition was made by the Ld. AO in the taxable income amounted to double taxation as it was already included in the ITR filed.”
The ld. CIT(A) has directed the AO to verify the claim of the assessee whether this amount is included in the total amount of Rs.72,87,523/- as claimed by the assessee or not but the assessee has preferred appeal on the ground that the ld. CIT(A) could not remand this matter to the AO but the fact is that even during proceedings before us the assessee could not bring on record anything showing that the amount of Rs.7,39,787/- as claimed remission and cessation of certain trading liability was part of Rs.72,87,523/- included in the disallowance as shown in the ITR, therefore, we are inclined to remand this issue to the file of the ld. AO to verify the claim of the assessee and delete the double addition after proper verification and examination of relevant documents. Accordingly, the assessee’s appeal on this ground is allowed for statistical purposes.