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M/S DAULATARAM ENGINEERING SERVICES P.LTD,MANDIDEEP vs THE ADIT/CPC , BANGALORE | BharatTax

M/S DAULATARAM ENGINEERING SERVICES P.LTD,MANDIDEEP vs. THE ADIT/CPC , BANGALORE

ITA 244/IND/2023Status: DisposedITAT Indore08 May 2025AY 2019-2020Bench: SHRI B.M. BIYANI (Accountant Member), SHRI PARESH M. JOSHI (Judicial Member)14 pages

AI SummaryDismissed

Facts

The assessee challenged disallowances of employee contributions to PF/ESI made by the AO under Section 143(1) for non-payment by the due dates, which were upheld by the CIT(A) and the Tribunal. The assessee argued that payment before the return filing date should be allowed, and the assessment under Section 143(1) was limited.

Held

The Tribunal held that the disallowances are justified as the Supreme Court in Checkmate Services (P) Ltd. has clearly ruled that for claiming deduction, employee contributions to PF/ESI must be deposited on or before the statutory due dates, irrespective of the assessment procedure (143(1) or 143(3)). The argument regarding the limited jurisdiction of Section 143(1) was also rejected.

Key Issues

Whether disallowance of employee PF/ESI contributions made under Section 143(1) for delayed payment beyond the due dates is justified, even if paid before the return filing date. Whether the limited jurisdiction of Section 143(1) affects this disallowance.

Sections Cited

143(1), 43B, 36(1)(va), 234A, 234B, 234C, 2(24)(x), 139(1), 260A

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, INDORE BENCH, INDORE

Before: SHRI B.M. BIYANI & SHRI PARESH M. JOSHI

For Appellant: Shri Vijay Bansal, AR

For Respondent: Shri Ashish Porwal, Sr. DR

Hearing: 05.05.2025Pronounced: 08.05.2025

आदेश/ O R D E R

Per B.M. Biyani, AM:

1.

Feeling aggrieved by order of first appeal dated 25.04.2023 passed by learned Commissioner of Income-Tax (Appeals)-NFAC, Delhi [“CIT(A)”] which in turn arises out of intimation of assessment dated 07.05.2020 passed by learned ADIT, CPC, Bangalore [“AO”] u/s 143(1) of Income-tax Act, 1961 [“the Act”] for Assessment-Year [“AY”] 2019-20, the assessee has filed this appeal on following grounds:

“1. That on the facts and in the circumstances of the case and in law, the learned CIT(A) erred and not justified in disallowing the Page 1 of 12 Assessment Year -2019-20 expenditure of Rs. 38,70,983/- u/s 43B of the IT Act and therefore be kindly allowed.

2. That on the facts and in the circumstances of the case and in law, the learned CIT(A) erred and not justified in disallowing the expenditure of Rs. 51,07,903/- u/s 36(1)(va) and hence be kindly allowed.

3. That on the facts and in the circumstances of the case and in law the said disallowance do not fall under the purview of 143(1) of the IT Act and therefore be allowed.

4. That on the facts and in the circumstances of the case and in law, that the levy of interest u/s 234A, 234B and 234C is unlawful and, therefore, the said levy be kindly deleted.” Ground No. 1 and 2:

2.

In these grounds, the assessee challenges the disallowances of Rs. 38,70,983/- (+) Rs. 51,07,903/- made by AO on account of employees’ contributions received by assessee towards Provident Fund / Employees State Insurance Fund (PF/ESI) by way of deduction from salaries but not paid to relevant funds upto the due dates prescribed under PF/ESI laws.

7. Being aggrieved, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) (hereinafter referred to as 'CIT(A)'). The CIT(A), by order dated 18.12.2023, dismissed the appeal. The assessee thereupon approached the Tribunal. The Tribunal, by the impugned order dated 13.03.2024, inter alia held that the issue involved in the appeal is covered by a decision of the Supreme Court in Checkmate Services (P) Ltd. v. CIT 1 and held that since the assessee had not remitted the employees' contribution to PF and ESI within the statutory dates, the amount cannot be claimed as a deduction. It was further held that, admittedly, the assessee had not deposited the employees' PF and ESI within the statutory dates but has deposited the same beyond the statutory dates. Accordingly, the Tribunal dismissed the appeal preferred by the assessee. Hence, this appeal. 8. Learned counsel for the assessee submitted that the issue involved in the appeal has not attained finality and is debatable. Therefore, the appeal should be admitted. 9. We have considered the submission made by learned counsel for the assessee and have perused the record. 10. The Supreme Court, in Checkmate Services (P) Ltd. (supra), in paragraph 52, has held as under: "When Parliament introduced Section 43B of the Income Tax Act, 1961, what was on the Statute Book, was only employer's contribution (Section 34(1)(iv)). At that point in time, there was no question of employee's contribution being considered as part of the employer's Assessment Year -2019-20 earning. On the application of the original principles of law, it could have been treated only as receipts not amounting to income. When Parliament introduced the amendments in 1988-89, inserting Section 36(1)(va) and simultaneously inserting the second proviso of Section 43B, its intention was not to treat the desperate nature of the amounts, similarly. As discussed previously, the memorandum introducing the Finance Bill clearly stated that the provisions - especially second proviso to Section 43B - was introduced to ensure timely payments were made by the employer to the concerned fund (EPF, ESI, etc.) and avoid the mischief of employers retaining amounts for long periods. That Parliament intended to retain the separate character of these two amounts, is evident from the use of different language. Section 2(24)(x) too, deems amount received from the employees (whether the amount is received from the employee or by way of deduction authorized by the stature) as income - it is the character of the amount that is important, i.e., not income earned. Thus, amounts retained by the employer from out of the employee's income by way of deduction etc. were treated as income in the hands of the employer. The significance of this provision is that on the one hand, it brought into the fold of "income" amounts that were receipts or deductions from employees' income, at the time, payment within the prescribed time - by way of contribution of the employees' share to their credit with the relevant fund is to be treated as deduction (Section 36(1)(va)). The other important feature is that this distinction between the employers' contribution (Section 36(1)(iv)) and employees' contribution required to be deposited by the employer (Section 36(1)(va)) was maintained - and continues to be maintained. On the other hand, Section 43B covers all deductions that are permissible as expenditures, or out- goings forming part of the assessees' liability. These include liabilities such as tax liability, cess duties etc., or interest liability having regard to the terms of the contract. Thus, timely payment of these alone entitle an assessee to the benefit of deduction from the total income. The essential objective of Section 43B is to ensure that if assessees are following the mercantile method of accounting, nevertheless, the deduction of such liabilities, based only on book entries, would not be given. To pass muster, actual payments were a necessary pre-condition for allowing the expenditure."

5.1. The Supreme Court analysed the relevant provisions in Para.30 to 34 and after noticing the attendant decisions, proceeded to observe, thus, "When Parliament introduced Section 43B, what was on the statute book, was only employer's contribution (Section 34(1)(iv)). At that point in time, there was no question of employee's contribution being considered as part of the employer's earning. On the application of the original principles of law it could have been treated only as receipts not amounting to income. When Parliament introduced the amendments in 1988-89, inserting Section 36(1)(va) and simultaneously inserting the second proviso of Section 43B, its intention was not to treat the disparate nature of the amounts, similarly. As discussed previously, the memorandum introducing the Finance Bill clearly stated that the provisions - especially second proviso to Section 43B- was introduced to ensure timely payments were made by the employer to the concerned fund (EPF, ESI, etc.) and avoid the mischief of employers retaining amounts for long periods. That Commissioner of Income-Tax Vs. Aimil Ltd., [2010] 321 ITR 508 (Delhi High Court). Parliament intended to retain the separate character of these two amounts, is evident from the use of different language. Section 2(24)(x) too, deems amount received from the employees (whether the amount is received from the employee or by way of deduction authorized by the statute) as income - it is the character of the amount that is important, i.e., not income earned." (Para.52) 5.1.1 It was further stated, "... Thus, amounts retained by the employer from out of the employee's income by way of deduction etc. were treated as income in the hands of the employer. The significance of this provision is that on the one hand it brought into the fold of "income" amounts that were receipts or deductions from employees income; at the time, payment within the prescribed time- by way of contribution of the employees' share to their credit with the relevant fund is to be treated as deduction (Section 36(1)(va)). The other important feature is that this distinction between the employers' contribution Section 36(1)(iv)) and employees' contribution required to be deposited by the employer Section 36(1)(va)) was maintained - and continues to be maintained. On the other hand, Section 43B covers all deductions that are permissible as expenditures, or out-goings forming part of the assessees' liability. These include liabilities such as tax liability, cess duties etc. or interest liability having regard to the terms of the contract. Thus, timely payment of these alone entitle an assessee to the benefit of deduction from the total income. The essential objective of Section 43B is to ensure that if assessees are following the mercantile method of accounting, nevertheless, the deduction of such liabilities, based only on book entries, would not be given. To pass muster, actual payments were a necessary pre-condition for allowing the expenditure." (Para.52)

5.1.2 The distinction between employers' contribution and liability to deposit the amount issued by it was explained as under: "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 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 Section 43B." (Para.53) 5.1.3 The Supreme Court finally held, "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. (Para.54) 5.1.4 It was added to observe, "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 Page 10 of 12 Assessment Year -2019-20 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." (Para.54) 6. In view of the law emerging from the decision of the Supreme Court in Checkmate Services (P) Ltd. (Supra), the contentions and the questions raised by the appellant could be said to be no longer res integra. The law as holding the field operates against the appellant. 6.1 Thus, no question of law much less any substantial question of law arises for consideration in this Appeal.