DCIT-2(2)(1), MUMBAI, MUMBAI vs. MODERN VEER RAYS SECURITY FORCE (INDIA) PVT. LTD., MUMBAI

The learned CIT(A), after examining the statutory provisions of section 36(1)(va) and Explanation thereto, section 38 of the Employees’ Provident Fund Scheme, 1952 and Regulation 31 of the Employees’ State Insurance (General) Regulations, 1950, recorded a finding that in the case of the assessee salary becomes due and payable only in the subsequent month after client certification and that the due date for deposit of employees’ contribution would accordingly fall in the subsequent month. The learned CIT(A) further held that the revised audit report was admissible in appellate proceedings and, upon verification of challans and supporting documents, concluded that there was no delay in deposit beyond the statutory due dates. The addition of Rs. 17,45,20,610/- made under section 36(1)(va) was thus deleted.

Aggrieved by the order of CIT(A), the revenue is in appeal before us raising following grounds of appeal:

On the facts and in the circumstances of the case and in law, the Ld. CIT(A) further erred in holding that salary becomes “due” only after attendance certification by the assessee’s clients, without appreciating that salary accrues at the end of the wage period under the PF/ESI laws and under the mercantile system of accounting regularly followed by the assessee, and therefore statutory due dates cannot be postponed based on employer’s internal administrative processes.

On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in accepting a revised tax audit report, which is not legally permissible for AY 2020–21 under Rule 6G of the Income-tax Rules, and in relying on such a revised report to conclude that no delay occurred, contrary to the auditor’s original Form 3CD which clearly reported delayed payments.

On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in ignoring and distinguishing the binding judgment of the Hon’ble Supreme Court in Checkmate Services Pvt. Ltd. v. CIT (2022), which mandates disallowance of employees’ contribution deposited even a day beyond the due date prescribed under PF/ESI Acts.

The learned Departmental Representative (DR) submitted that the learned CIT(A) erred in deleting the disallowance ignoring the statutory mandate that employees’ contribution must be deposited within the due date prescribed under the EPF and ESI Acts. It was contended that salary accrues at the end of the wage period under the mercantile system of accounting followed by the assessee and statutory due dates cannot be postponed based on internal administrative processes. It was further argued that the revised tax audit report dated 08.03.2023 was issued much after Modern Veer Rays Security Force (India) Pvt. Ltd the intimation under section 143(1) dated 24.12.2021 and is an afterthought.

The learned DR also submitted that the learned CIT(A) granted relief without calling for a remand report from the Assessing Officer despite relying upon revised audit report and other supporting documents, thereby violating Rule 46A of the Income-tax Rules. Reliance was placed on the judgment of the Hon’ble Supreme Court in Checkmate Services Pvt. Ltd. v. CIT [143 taxmann.com 178]to contend that employees’ contribution deposited even a day beyond the statutory due date is liable to disallowance.

Per contra, the learned Authorised Representative submitted that the issue is squarely covered in favour of the assessee by the decision of the co-ordinate Bench in the assessee’s own case for A.Ys. 2018-19 and 2019-20 in and 1167/Mum/2023, order dated 23.08.2023, wherein under identical facts the Tribunal held that the due date for deposit of PF/ESI contribution has to be reckoned from the month in which salary becomes due and payable, which in the assessee’s case is the subsequent month. It was submitted that the learned CIT(A) has co-terminus powers with that of the Assessing Officer and is empowered to examine the material placed on record. It was argued that processing under section 143(1) is purely based on audit report entries and the assessee had no opportunity to explain the factual position before CPC. Therefore, there is no violation of Rule 46A. It was further contended that once it is Modern Veer Rays Security Force (India) Pvt. Ltd demonstrated on facts that there was no delay as per statutory due dates, no disallowance under section 36(1)(va) can be sustained.

We have considered the rival submissions and perused the material on record. The short issue for our consideration is whether the deletion of addition made under section 36(1)(va) on account of alleged delayed deposit of employees’ contribution towards PF/ESI is sustainable in law and on facts. It is not in dispute that the adjustment under section 143(1) was made solely on the basis of reporting in Form 3CD. It is also a matter of record that the assessee has explained the peculiar nature of its business, the contractual terms with clients and the timing of salary accrual and payment. The learned CIT(A) has recorded a categorical finding that salary becomes due and payable only in the subsequent month after client certification and that the due date under the respective welfare legislations has to be reckoned accordingly. The learned CIT(A) has also recorded that challans and revised auditor’s certificate were examined before granting relief.

As regards the contention of the Revenue regarding violation of Rule 46A, we find that the appellate authority is vested with wide co-terminus powers and is competent to examine additional material for proper adjudication of the issue. The order of the learned CIT(A) reflects that he has examined the statutory framework and the evidences placed on record before arriving at his conclusion. In the facts of the present case, the adjustment Modern Veer Rays Security Force (India) Pvt. Ltd under section 143(1) having been made without any opportunity to the assessee to explain the factual position, the first appellate authority was justified in examining the relevant material. No specific prejudice has been demonstrated by the Revenue on account of non-calling of remand report.

Further, we note that in the assessee’s own case for earlier assessment years under identical factual matrix, the co-ordinate Bench has accepted the principle that the due date for deposit of employees’ contribution has to be reckoned from the month in which salary becomes due and payable in terms of contractual arrangement and business model of the assessee. The Revenue has not brought any distinguishing facts for the year under consideration. Judicial discipline requires that a consistent view be adopted unless there is a material change in facts or law.

In so far as reliance on the decision of the Hon’ble Supreme Court in Checkmate Services Pvt. Ltd. (supra) is concerned, the said judgment lays down that employees’ contribution deposited beyond the due date prescribed under the respective Acts is not allowable. However, in the present case the learned CIT(A) has recorded a finding of fact that there was no delay beyond the statutory due date when reckoned in accordance with the correct month of accrual of salary. The said finding has not been rebutted by any cogent material on record.

In view of the above discussion and in the absence of any material to controvert the factual findings recorded by the learned CIT(A), we do not find any infirmity in the order of the learned

In the result, the appeal of the Revenue is dismissed.