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Facts
The assessee filed an appeal against the order of the CIT(A) which upheld the disallowance of Rs. 24,16,427/-. This disallowance was made due to the belated payment of employee's contribution to Provident Fund and ESI after the statutory due date.
Held
The Tribunal held that the employee's contribution to PF/ESI can only be allowed as a deduction if it is paid within the prescribed due dates. The Supreme Court decision in Checkmate Services Pvt. Ltd. was relied upon, which clearly distinguishes between employer's primary liability and the liability to deposit employee contributions.
Key Issues
Whether the disallowance of employee's contribution to PF/ESI made for belated payment beyond the statutory due date is justified.
Sections Cited
143(1), 36(1)(va), 246A, 250, 253, 43B, 2(24)(x)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, CHANDIGARH
Before: SHRI VIKRAM SINGH YADAV & SHRI PARESH M. JOSHI,
order bearing No. ITBA/APL/S/250/2023- 24/1058730372(1) dated 13.12.2023 passed by CIT(A) under Section 250 of the Act which is hereinafter referred to ITA 80/CHD/2024 A.Y. 2019-20 2 as the “impugned order”. The relevant assessment year is 2019-20 and the corresponding previous year period is from 01.04.2018 to 31.03.2019.
Factual Matrix 2.1 That by an intimation order under Section 143(1) of the Act passed by the Assistant Director of Income Tax Act CPC Banaluru for the assessment year 2019-2020 on 27.10.2020 an amount of Rs.24,16,427/- was disallowed by virtue of provision contained in Section 36(1)(va) of the Act which pertained to sum received from employees as contribution to provided Fund, ESI etc.
2.2 That assessee being aggrieved by the aforesaid intimation order dated 27.10.2020 preferred first appeal under Section 246A before the ld. CIT(A) who by the impugned order has rejected their appeal in respect of aforesaid disallowance.
2.3 That the assessee being aggrieved by the aforesaid “impugned Order” has preferred the present second appeal before this Tribunal and has raised following grounds of appeal against the impugned order which are as under :
ITA 80/CHD/2024 A.Y. 2019-20 3 “1. That the Order passed by the Ld. CIT(A) is contrary to law and facts of the case. 2. That the Ld. CIT (A) erred in law and on facts in upholding the disallowing Rs.24,16,427/- under section 36 (l)(va) of the Income Tax Act, 1961 pertaining towards sum received from employees as contribution to Provident Fund, ESI, etc 3. That the appellant craves leave to add/alter/amend any ground of appeal on or before the due date of hearing of appeal.”
3. Record of Hearing 3.1 The hearing in the matter took place before this Tribunal on 08.01.2025 when ld. AR for and on behalf of the assessee appeared and ld. DR for and on behalf of the Revenue appeared. During the course of the hearing it was pointed out to us that issue in the appeal stands covered by the judgement of Hon'ble Supreme Court of India in case of Checkmate Services Pvt. Ltd. Vs CIT-1 (Civil Appeal No.2833 of 2016) dated 12.10.2022 wherein in para 53 the Hon'ble Supreme Court has observed and held as under :
"53. The distinction between an 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 (Section 36(1 )(va)) is, thus crucial. 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) - unless the conditions spelt by Explanation to Section 36(1)(va) are satisfied 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
ITA 80/CHD/2024 A.Y. 2019-20 4 amounts - 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 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 Section43B.
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 leewayin 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 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 nonobstante 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.
In the light of the above reasoning, this court is of the opinion that there is no infirmity in the approach of the impugned judgment. The decisions of the other High Courts, holding to the contrary, do not lay down the correct law. For these reasons, this court does not find any reason to interfere with the impugned judgment. The appeals are accordingly dismissed.”
ITA 80/CHD/2024 A.Y. 2019-20 5 Basis above, it was noticed that the assessee had deposited Rs.24,16,427/- belatedly after the due date of payment under the respective acts in so far as statutory due of employees are concerned i.e. EPF/ESI etc. Hence, the ld.
AO CPC rightly disallowed the amount and so also ld. CIT(A). The ld. AR has failed to controvert above position and ld. DR has supported the impugned order.
Observations, findings and conclusions 4.1 In the premises set out hereinabove and in view of the judgement of Hon'ble Supreme Court of India in case of Checkmate Service Pvt. Ltd. Vs CIT-1 dated 12.10.2020, we are of the considered opinion that the ld. CIT(A) has rightly held as under :
6.18. From the above judicial decision of the Hon'ble Apex Court of the country and also the unambiguous wording of the amended provisions of section 36(1) and 43B, it is clear that the employee's contribution can be allowed as a deduction only if it had been paid within the prescribed due dates under the relevant welfare funds and this position of law is and has always been the case and the clarifications brought about by the amendment clearly apply retrospectively. The case laws relied upon by the appellant were rendered prior to the decision of Hon'ble Supreme Court in the case of Checkmate Services Pvt. Ltd. Vs Commissioner of !ncome-tax-1, therefore are not applicable to the present case.
ITA 80/CHD/2024 A.Y. 2019-20 6 In view of the above, the addition of Rs. 24,16,427/- made by the A.O, CPC in respect of belated payment of employee's contribution towards EPF and ESI is confirmed. The appeal filed on this ground is dismissed.
4.2 We therefore, find no infirmity in the impugned order and consequentially we upheld and sustain the same.
4.3 Accordingly, the impugned order is sustained and upheld and requires no interference by this Tribunal.
ORDER 5.1 In result appeal of assessee is dismissed.
Order pronounced on 20.01.2025.