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Facts
The assessee, Coforge Ltd., faced a disallowance of Rs.6,00,82,761/- under section 36(1)(va) for alleged delay in depositing employees' contributions to a 401K Retirement Benefits Plan USA. The CPC initiated the disallowance, which was confirmed by the CIT(A), based on the tax auditor's observation that payments were not made within the due date. The assessee argued that payments were made within the '15th business day' as per US laws, which differs from a 'calendar day' interpretation, and also raised an issue regarding non-adjudication of interest under section 234C.
Held
The Tribunal found that the CIT(A) failed to properly consider the assessee's submissions and the explanation of 'business day' as defined under US laws for the 401K plan. It was established that the contribution payments were made within the prescribed 15th business day timeline according to US regulations. Consequently, the Tribunal reversed the CIT(A)'s decision, holding that the disallowance under section 36(1)(va) was not justified.
Key Issues
1. Whether disallowance under section 36(1)(va) for alleged delayed deposit of employees' contributions to a US 401K Retirement Benefits Plan was valid, considering payments were made within the '15th business day' as per US laws. 2. Whether the CIT(A) erred in not adjudicating the ground concerning excessive interest levied under section 234C.
Sections Cited
Section 250, Section 36(1)(va), Section 143(1)(a), Section 234C, Section 2(24)(x)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH ‘B’, NEW DELHI
Before: Sh. C. N. PrasadDr. B. R. R. Kumar
Asstt. Year : 2019-20 Coforge Ltd., Vs. ADIT, 8, 3rd Floor, Balaji Estate, Guru Ravi Das Central Processing Center, Marg, Kalkaji, New Delhi-110019 Bengaluru-560500 (APPELLANT) (RESPONDENT) PAN No. AAACN0332P Assessee by : Sh. Alok Vasant, Adv. & Ms. Poonam Ahuja, Adv. Revenue by : Sh. T. James Singson, CIT-DR Date of Hearing: 01.08.2024 Date of Pronouncement: 06.09.2024 ORDER
Per Dr. B. R. R. Kumar, Accountant Member:
The present appeal has been filed by the assessee against the order of ld. Addl./JCIT(A), Madurai dated 24.01.2024.
Following grounds have been raised by the assessee:
“1. That having regard to the facts and circumstances of the case, Ld. Commissioner of Income Tax (Appeals) ['Ld. CIT(A)'] has erred in law and on facts in passing the impugned order dated January 24, 2024, under section 250 of the Act and thereby confirming the action of Ld. AO vis- à-vis disallowance in terms of section 36(1)(va) of the Act.
2. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in disallowing Rs.6,00,82,761 by merely stating that the Assessee has failed to make payment of employees' contribution to 401K Retirement Benefits Plan USA, under section 36(1)(va) of the Act, within the due date even though the payments were made within the due date as per the relevant laws in United States of America.
2 Coforge Ltd. 3. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in not adjudicating the ground of appeal pertaining to excessive interest amounting to Rs.3,50,404 levied by Ld. AO under section 234C of the Act.”
3. The assessee is a listed company and is in the business of offering global IT solutions. The assessee filed its revised return of income on July 06, 2020, declaring a total income of Rs.245,49,35,430 and claimed a refund of Rs.44,12,360/-.
A notice cum intimation dated February 18, 2021 in terms of first proviso to section 143(1)(a) of the Act, was received and a response to the same was filed by the assessee. The CPC processed the return of income and made an adjustment of Rs.6,00,82,761/- on account of delay in the employees’ contribution to a specified Retirement Benefits Plan - USA, on the basis of the observations made by the Tax Auditor in the Tax Audit Report at clause 20(b) vide Intimation dated March 27, 2021 passed under section 143(1) of the Act.
Aggrieved, the assessee filed appeal before the ld. CIT(A).
The Ld. CIT(A) passed the Appellate Order on January 24, 2024, partly allowing the appeal filed by the assessee. However, the issue of disallowance of Rs.6,00,82,761/- on account of alleged delay in the deposit of the employees’ contribution to the specified Retirement Benefits Plan - USA, was decided against the assessee.
Aggrieved, the assessee filed appeal before the Tribunal.
Before us, the ld. AR submitted that in the Intimation passed under section 143(1) of the Act in pursuance of the 3 Coforge Ltd. return of income filed by the assessee, the AO made a disallowance of Rs.6,00,82,761/- on account of delay in the deposit of the employees’ contribution to the specified Retirement Benefits Plan - USA, on the basis of the observations made by the Tax Auditor in the Tax Audit Report at clause 20(b).
The ld. AR draw attention to the provisions of section 36(1)(va) of the Act (emphasis provided):
“Other deductions.
(1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28— (va) any sum received by the assessee from any of his employees to which the provisions of sub-clause (x) of clause (24) of section 2 apply, if such sum is credited by the assessee to the employee's account in the relevant fund or funds on or before the due date.
Explanation 1].—For the purposes of this clause, "due date" means the date by which the assessee is required as an employer to credit an employee's contribution to the employee's account in the relevant fund under any Act, rule, order or notification issued thereunder or under any standing order, award, contract of service or otherwise.”
Month and Name of Amount (in Actual due Deposit date Relevant Amount Year Welfare Fund - Rs.) date as per (As also page of reflected in Members' US Law # confirmed by bank bank contributions Tax Auditor statemen statement (in on pg. 121 of t in USD) PB) paper book Dec. 2018 401K Payable- 1,86,32,852 21-Jan-2019 16-Jan-2019 Page 166 371,768.37* US Branch Jan. 2019 401K Payable- 2,11,18,051 21-Feb-2019 26-Feb-2019 Page 172 407,233.25* US Branch Mar. 2019 401K Payable- 2,03,31,858 19-Apr-2019 16-Apr-2019 Page 178 404,405.56* US Branch
It was brought to our notice that under the Department of Labor (DOL) rules relevant for 40IK Retirement Benefits Plan - USA, employee contributions must be deposited as of the earliest date the contributions could reasonably be segregated from the employer's general assets, but in no event later than the 15th business day of the month following the payday. The write up on the 40IK Retirement Benefits Plan - USA (PB 237- 253, page 243), highlights that the contributions are to be deposited not later than 15th business day of the month following the payday. The Tax Auditor had inadvertently mentioned the “Due date for payment” as 15th of the month instead of mentioning the 15th Business Day of the month. In USA, this is considered to be Monday through Friday and excludes weekends and public holidays. The meaning ascribed to the term ‘business day’ in USA is enumerated here-in-below:
Code of Federal Regulations (CFR) Business day means a calendar day, excluding Saturdays, Sundays, and legal public holidays. Business day means any day that is not a Saturday, Sunday or legal holiday.
5 Coforge Ltd.
In view of the above facts, it was argued that the contribution payments made to 401K retirement plan in the month of January 2019 and April 2019 i.e. on January 16, 2019 and April 16, 2019 respectively were made well within the timelines prescribed as per the US Laws. On exclusion of Saturdays and Sundays, then 15lh business day in January, 2019 falls on January 21, 2019 and similarly in April, 2019, the 15th business day falls on April 19, 2019. Since, the contribution payments were made on January 16, 2019 and April 16, 2019 respectively, the payments were duly made within the 15 business days requirement under the US law.
On the other hand, the ld. DR relied on the order of the CPC.
Heard the arguments of both the parties and perused the material available on record.
We find that the Ld. CIT(A) has not properly dealt with the written submissions placed on record during first appellate proceedings and the dates of payments which were furnished as well as the explanation regarding ‘business day’, have not been taken into consideration while passing the Appellate Order. The Ld. CIT(A) has merely referred to the requirement of depositing the contribution within 15 business days but has ignored the fact that the deposits were made within the said due dates. It is also not out of place to mention here that the number of participants to the 401K contribution was more than 100. Please refer page 211 of the Paper book, giving details of the number of participants at the beginning of the plan year and at the end of the plan year. Thus, it is pertinent to note that the applicable
In view of the above facts and evidence placed on record, the decision of the ld. CIT(A) is reversed. In the result, the appeal of the assessee on this ground is allowed.
In the result, the appeal of the assessee is allowed. Order Pronounced in the Open Court on 06/09/2024.