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Facts
The assessee's income for AY 2018-19 was initially assessed u/s 143(1) with an addition of Rs.37,53,420/- for late payment of employee's EPF and ESIC contributions. During scrutiny, the Assessing Officer further disallowed Rs.22,80,737/- as business expenses, citing a discrepancy between the assessee's ledger account (Rs.1,06,59,188/-) for services from M/s Meliora Services and the bills/receipts (Rs.83,78,449/-), for which the assessee could not provide a plausible explanation. The CIT(A) upheld these additions.
Held
The Tribunal remanded the issue of delayed EPF/ESIC payments (Grounds 2-4) back to the Assessing Officer for re-examination, considering judicial pronouncements on the determination of due dates based on salary disbursement. For the disallowance of business expenses (Ground 5), the Tribunal deleted the addition of Rs.22,80,737/-, noting that the total contract amount of Rs.1,06,59,188/- was already declared as income and offered to tax by the assessee, rendering the proposed addition uncalled for.
Key Issues
Whether delayed payment of employee's contribution to EPF and ESIC is disallowable, and whether the disallowance of business expenses due to a discrepancy in contract value shown in ledgers versus actual payments is justified.
Sections Cited
143(1), 36(1)(v)(a), 43B(b), 143(3), 234B, 234C, 37(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHIBENCH “F”, NEWDELHI
Before: SHRI S. RIFAUR RAHMAN & SHRI SUDHIR KUMAR
Order
: 20.12.2024 O R D E R
PER S. RIFAUR RAHMAN, AM :
This appeal is filed by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi (hereinafter referred to as ‘ld. CIT (A)) dated 13.11.2023 for the Assessment Year 2018-19.
Brief facts of the case are, the assessee had electronically filed his return of income declaring income of Rs.80,11,440/- on 07.09.2018 for the Assessment Year 2018-19. The case was processed u/s 143(1) of the Income-tax Act, 1961 (for short ‘the Act’) and an amount of Rs.37,53,420/- was added as Employee's share of EPF and ESIC which were paid late, i.e. beyond the due date. The case was selected for scrutiny under CASS to verify the expenses on account of large contract amount paid. Accordingly, various notices were issued from time to time and the assessee responded to those notices at some occasions. In the course of scrutiny, the Assessing Officer noted that the assessee has made a payment of Rs.83,78,449/- to one M/s. Meliora Services for carrying out services in respect of one of the clients of the assessee. Assessing Officer observed that TDS was also deducted on this amount, though the above concern was found not to have filed its return of income. The assessee furnished the ledger account of the above concern in its own books of accounts, copies of bills raised by M/s. Meliora Services and also confirmation regarding no dues from the party. Assessing Officer, however, noted that the total of bills/invoices as well as total receipt by M/s Meliora Services was to the tune of Rs.83,78,449/-, but the ledger account of this concern in the books of the assessee revealed an expense of Rs.1,06,59,188/. The assessee could not furnish any plausible explanation to this difference and accordingly, the difference of Rs.22,80,737/- was disallowed and added to the total income of the assessee.
Thus the income of the assessee was assessed at Rs.1,40,45,600/-. 3. Against the aforesaid order of the AO, assessee preferred appeal before the ld. CIT(A), who vide his impugned order dated 13.11.2023 dismissed the appeal of the assessee. 4. Aggrieved, assessee is an appeal before us raising following grounds of appeal:- “1. The learned assessing officer has erred in assessing the income of the assessee at Rs.1,40,45,600/- as against the returned income of Rs.80,11,440/- by the appellant.
2. The learned assessing officer erred in confirming the Income determined / assessed u/s 143(1) of the Income Tax Act 1961.
3. The learned assessing officer has erred in confirming the addition of Rs.13,68,501/-on account of delay in payment of employee's contribution towards EPF & ESI beyond the due dates u/s 36(1) (v) (a) of the Income Tax Act, 1961.
4. The learned assessing officer has erred in not considering the due dates for payment of Employees contribution of PF / ESIC from the month in which actual disbursement of salary is made.
5. The learned assessing officer has erred in disallowing the business expenses of Rs.22,80,737/-
6. The learned assessing officer has erred in not considering the provisions of Section 43B (b) which allows the payments made on or before the due date of filing the return of income as deductible.
7. The learned Commissioner of Income Tax (Appeals) erred in confirming the order of the assessing officer passed u/s 143(3) of the Act.
8. The learned assessing office has erred in levying the interest u/s 234B & 234C of the Income Tax Act, 1961.”
5. At the time of hearing, with regard to the issue of ESI/PF, the assessee has submitted written submission which are reproduced, for the sake of clarity, as under :- “The CPC 8engaluru issued a notice U/s 143(1)(a) of the Income Tax Act, 1961 on 19th January, 2019 show causing to propose the addition of Rs 1,368,5011- on account of delay in payment of employee's contribution towards EPF & ESIC beyond the due dates u/s 36(1) (v) (a) of the Act and a sum of Rs 2,384,517/- U/s 438 on account of nonpayment PF and ESIC for earlier years. Thus, the total addition of Rs 3,753,018/- has been made U/s 143(1) to the returned Income. The assessee is not contesting the addition of Rs 2,384,517/- U/s 438 for non-payment of PF and ESIC and has agreed to the addition. And therefore, out of the total addition of Rs.3,753,018/- the assessee is contesting the addition of Rs 1,368,5011- only. (Copy of detailed working and reconciliation is enclosed at Pages 41). In support of the assessee's contention for non-disallowance of Rs 1,368,501/- U/s 36(1) (va) re lance is placed: In view of the latest judicial pronouncements and judgments in the case of Sentinel Consultants Private Limited Vs ACIT & 8/De1l2023 Dated 12/06/2023 it was observed y he Hon'ble Income Tax Appellate Tribunal (ITAT) in Para 9 of the Order as follows: Quote 9,3 "We also take note of yet another plea made out on behalf the assessee towards the methodology of calculation of default under the relevant PF I ESIC Act. The Ld. Counsel contends that the month during which the disbursement of salary is actually made would be relevant for the purpose of determination of due date of deposit under the respective statute. The accrual of liability towards payment of salary without actual disbursement would not fasten obligation for deposit of employees' contribution in the labour acts per se. as observed by the co-ordinate bench in Kanoi Paper and Industries Ltd vs. ACIT (2002) 75 TTJ 448 (Cal). This aspect has not been found to be examined by the Assessing Officer or CIT(A). Hence, without expressing any opinion on merits of this aspect, we deem it expedient to restore the matter to the file of designated AO and take such plea for evaluation of the AO. The AO shall examine in s aspect and fresh order in accordance with law after giving proper opportunity"
Unquote Copy Enclosed at Pages 42-47 Reliance is also placed in the case of Cargo Motors (Gujrat) Private Limited vs ACIT - Dated 25/07/2023 wherein the Hon'ble ITAT relying on the judgement in the case Sentinel Consultants Private Limited Vs ACIT ITA No 7 & 8/Dell2023 Dated 12/06/2023 as above has remanded back the matter to the file of the assessing officer. The Hon'ble ITAT observed in para 7 of the order as follows: “7. The observations made in Sentinel Consultants Pvt. Ltd. shall apply mutatis mutandis. Consequently, we consider it expedient to restore the issue back to the file of AO for factual verification and redetermination in the issue on the light of determination made by the Co-ordinate Bench in the case of Kanoi Paper and Industries Ltd. (supra). The AO shall thus recompute the amount of disallowance under section 36(1)(v)(a) of the Act, if any, on the above basis, in accordance with law. The assessee shall be entitled to appropriate relevant under section 36(1)(v)(a) of the Act where it is found that deposits have been made towards PFIESIC within the due date from the close of the month of actual disbursement of salary / wages in the light of interpretation rendered in the case of Kanoi Paper and Industries Ltd. supra)." Copy enclosed at Pages 48-52. As per the impugned order U/S 143(1) and confirmed in the order U/s 143(3) of the Act there as addition of Rs 1,368,9011 U/s 36(1)(v)(a) of the Act for delay in Ten months for the payment of Provident Fund (Rs 1252073/-) and ESIC (Rs 116828/-) for One month which has been added back to the income of the Assessee. In view of the above judicial pronouncements and judgements we are enclosing the summary of the actual disbursements of Salary and the relevant due dates of payment of PF / ESIC. As is evident from the enclosed summary considering the actual disbursements of salary, all the dues of PF / ESIC have been made within the due dates of payments of PF / ESIC. FOR EXAMPLE - For the Month of Feb 2018, the salary has been actually disbursed between 01 st Mar, 2018 to 10th Mar 2018 and hence the due dates of payment of PF would be 15th April, 2018 and the actual date of payment is 16th, 20th and 215t March, 2018 i.e. well within the due date .
And so on …………... ... ... .... the details are given in the enclosed summary for both PF and ESIC. The Salary Expenses ledger, Salary Payable ledger, PF Payable Ledger, ESIC payable ledger, PF and ESIC Challans for the month of Feb 2018 are enclosed at Pages 53-100 on test check basis being voluminous and very bulky.
In view of his above submissions, ld. AR submitted that the matter may be remitted to the Assessing Officer for verification.
As regards ground no.5, ld. AR for the assessee submitted that the assessee received orders worth Rs 10,659,188/- (Including the GST and levies) from Whirlpool of India Limited ("Whirlpool") to provide the services of Glow sign Boards and Sun Boards. He submitted that the assessee provided the services and raised the invoices from time to time as per the summary at Pages 101-102 of the paper book and the invoices so raised were recorded as revenue under the head Sale of Services and offered to Tax. He further submitted that a copy of Ledger account of Whirlpool of India Limited is enclosed at Pages 103-105. He submitted that against the order received from Whirlpool, the assessee placed back-to-back purchase order to avail such services from the Meliora Services ("Meliora") for a sum of Rs.8,378,450/- (excluding the GST and levies) and the Meliora provided the services to the assessee and raised the invoices of Rs 83,78,450/- on assessee Meliora, c Invoices and Ledger Account of Meliora are attached at Pages 106-113 of the paper book. He further submitted that the assessee recorded and claimed the expenses under the head of Other Support Expenses - Sub head of Job Work Charges in the books of accounts as per Pages 114-115 of the paper book. He submitted that after deduction of TDS @1% on a sum of Rs 83,78,450/-, assessee made the payment to Meliora and copy of TDS Return for the respective periods are enclosed at pages 116-148 of the paper book. He, therefore, pleaded that the expenses as claimed in the books of accounts against the invoices of Meliora is only Rs.83,78,450/- and the same can be corroborated from the relevant P&L a/c schedules, copy of which is placed at Page 149 of the paper book and details as above are at Pages 114-115 and confirmation of Meliora is at Pages 150-151. Accordingly, he prayed that this ground may be allowed.
On the other hand, ld. DR for the Revenue objected to the submissions made by the ld. AR for the assessee and submitted that the issue is squarely covered by the decision of Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd. vs. CIT 143 taxmann.com 178. With regard to Ground no.4 also, he objected to the submissions of the ld. AR for the assessee and relied upon the orders of the lower authorities.
8. Considered the rival submissions and material placed on record. With regard to ground nos.2 to 4 regarding delay in payment of employee’s contribution towards EPF & ESIC beyond the due dates u/s 36(1)(v)(a) of the Act, we observed that the issue under consideration is against the assessee on the basis of decision of Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd. (2022) 143 taxmann.com 178. 8.1 Coming to alternative plea of the assessee. Considered the rival submissions and this plea was considered by the coordinate Bench in the case of M/s Benson Movers Pvt. Ltd in for AY 2019-20 and the relevant decision of the coordinate Bench is as under :-
“5. In so far as employees contributions towards PF & ESI it is noticed that the issue as to whether the due date under PF/ESI Acts should be as per the calendar month for which the salary is payable or from the month in which the salary is paid to the employee by the employer came up for adjudication in the case of Sentinel Consultants Pvt. Ltd. Vs. ACIT (supra) and the Tribunal restored the issue to the file of the AO with the following observations:- “9. We have carefully considered the rival submissions and perused the material available on record. The disallowance of employees’ contribution to PF/ESIC for breach of condition under Section 36(1)(va) is in controversy. 9.1 We notice at the outset that an opportunity was given via electronic platform of the deptt. For the proposed adjustments and in the absence of e-response, the adjustments were carried out the CPC-Bangluru and intimation was issued enhancing the assessed income in the captioned assessment years. The CIT(A) in the first appeal has sustained the adjustments towards belated deposits of employees’ contribution to PF/ESIC in the light of the judgment rendered by the Hon’ble Supreme Court in Checkmate Pvt. Ltd. vs. CIT (2022) 143 taxmann.com 178 (SC). The contention of the Assessee that such additions cannot be made under the umbrella of S. 143(1) is covered against the assessee the decision of the co- ordinate bench in the case of Weather Comfort Engineers Private Limited vs. ACIT-CPC order dated 15/02/2023. The action of CPC and CIT(A) thus cannot be faulted where some opportunity was admittedly given for e- response. 9.2 We now turn to alternate plea on behalf of the assessee for grant of deduction under general provisions for deduction of expenditure under S. 37 of the Act. We do not see any merit in such plea that the belated deposit of employees contributions to PF/ESIC governed under Section 36(1)(va) is also simultaneously amenable to deduction under Section 37(1) of the Act. In terms of the provision, Section 37(1) permits deduction of expenditure which is not in the nature of expenditure prescribed in Sections 30 to 36 of the Act and also not being in the nature of capital expenditure or personal expenses of the assessee. Thus, in view of such mandate of law, the deduction of expenditure under the general clause of Section 37(1) would not extend to expenditure specially covered within the ambit of Section 36(1)(va) of the Act. The Hon’ble Supreme Court in the case of Checkmate Pvt. Ltd. (supra) itself explains this position in Para 32 of the Judgment. Such view also draws support from the observations made in recent judgment of the Hon’ble Supreme Court in the case of Pr.CIT vs. Khyati Realtors (P) Ltd. (2022) 141 taxmann.com 461 (SC). The alternate plea is thus without any merit. 9.3 We also take note of yet another plea made out on behalf the assessee towards methodology of calculation of default under the relevant PF/ESIC Act. The Ld. Counsel contends that the month during which the disbursement of salary is actually made would be relevant for the purposes of determination of due date of deposit under the respective statute. The accrual of liability towards payment of salary without actual disbursement would not fasten obligation for deposits of employees contribution in the labour Acts per se. as observed by the co-ordinate bench in Kanoi Paper and Industries Ltd. vs. ACIT (2002) 75 TTJ 448 (Cal). This aspect has not been found to be examined by the Assessing Officer or CIT (A). Hence without expressing any opinion on merits on this aspect, we deem it expedient to restore the matter to the file of designated AO. It shall be open to the assessee to place factual matrix before the AO and take such plea for evaluation of the AO. The AO shall examine this aspect and fresh order in accordance with law after giving proper opportunity.”
6. We find similar view has been taken by the co-ordinate benches in the cases of B. L. Kashyap & Sons Ltd. (supra) and VVDN Technologies Pvt. Ltd. (supra). The ld. Counsel submits that in view of these decisions the matter may be restored to the Assessing Officer to ascertain the due date for remittance of the PF/ESI contributions of employees. Considering the decisions of the coordinate benches referred to above we restore this issue to the file of the Assessing Officer to decide in the light of the observations made by the Tribunal in the case of Kanoi Paper & Industries Ltd. Vs. ACIT (supra). Needless to say that the Assessing Officer shall provide adequate opportunity of being heard to the assessee and the assessee is at liberty to provide all the necessary information in support of its contention.”
Since the above issue is squarely covered by the above decision, we are inclined to remit the issue back to the file of AO to consider the alternative plea of the assessee as per law after giving proper opportunity of being heard to the assessee.
With regard to Ground no.5, we observed that the assessee was awarded a contract of Rs.1.06 crores by Whirlpool of India Limited and on the basis of back to back contracts, it has given the sub-contracts to Meliora Services. The assessee has completed the contract with the assistance of Meliora and paid the relevant job work charges after deducting relevant TDS. Assessee also claimed the relevant explanation of Rs.83,78,450/- only in its Profit & Loss Account. The Assessing Officer has wrongly noticed that the assessee has given contract to Meliora Services to the extent of Rs.106,59,188/-. The Assessing Officer with the wrong information observed that the assessee has not deducted TDS on the difference amount of Rs.22,80,737/-, accordingly proceeded to disallow the same. After considering the facts on record, we observed that the total amount of the contract was Rs.106,59,188/-, which was already declared by the assessee in their books of account as income and offered to tax. Therefore, the addition proposed by the Assessing Officer is uncalled for. Hence, the same is directed to be deleted. Accordingly, Ground No.5 is allowed.
In the result, the appeal of the assessee is allowed for statistical purposes. Order pronounced in the open court on this 20th day of December, 2024.