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Facts
The Revenue appealed the CIT(A)'s order, challenging the deletion of additions related to a discrepancy in turnover as per Form 26AS (undisclosed TDS u/s 194C), the disallowance of expenses u/s 14A in the absence of exempt income, and the delayed payment of employee contributions to ESI/PF. The CIT(A) had deleted these additions based on various reasons, including reliance on the *Alom Extrusions* judgment for ESI/PF.
Held
The Tribunal upheld the CIT(A)'s deletion of additions concerning the turnover discrepancy (attributable to late TDS return filing by the client) and Section 14A (as no exempt income was found). However, for the delayed ESI/PF contributions, the Tribunal reversed the CIT(A)'s order, citing the Supreme Court's ruling in *Checkmate Services Pvt. Ltd.* which mandates timely deposit of employee contributions for them to be deductible.
Key Issues
1. Whether the CIT(A) erred in deleting the addition for difference in turnover based on Form 26AS (undisclosed TDS u/s 194C). 2. Whether the CIT(A) erred in deleting the addition u/s 14A in the absence of exempt income. 3. Whether the CIT(A) erred in deleting the addition for delayed payment of employee contributions towards PF/ESI under Section 36(1)(va) read with Section 2(24)(x).
Sections Cited
Section 194C, Section 14A, Section 2(24)(x), Section 36(1)(va), Section 43B
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Income Tax Appellate Tribunal, DELHI BENCH ‘B’, NEW DELHI
Before: Sh. Kul BharatDr. B. R. R. Kumar
ORDER
Per Dr. B. R. R. Kumar, Accountant Member:
The present appeal has been filed by the Revenue against the order of ld. CIT(A)-3, New Delhi dated 14.01.2020. 2. Following grounds have been raised by the Revenue:
“1. Whether on the facts and in the circumstance of the case and in law the CIT(A) has erred in deleting the addition of Rs. 22,87,650/- made by the AO on account of undisclosed TDS u/s 194C of the Act despite the fact that Form 26AS in showing more turnover.
Whether on the facts and in the circumstances of the case and in law the CIT(A) has erred in ignoring the fact that the assessee has not shown correct turnover and the difference in turnover amounting to Rs. 22,87,650/- has not been put to tax.
3. Whether on the facts and in the circumstances of the case and in law the CIT(A) is right in deleting the F addition amounting to Rs. 1,81,434/- made by AO u/s 14A of the Act where there is no exempt income.
2 Eagle Hunter Solutions Ltd.
4. Whether on the facts and in the circumstances of the case and in law the CIT(A) is correct in holding that exempt income is a must condition for disallowance of expenses w/s 14A of the Act.
Whether on the facts and in the circumstances of the case and in law the CIT(A) is correct in deleting the addition amounting to Rs. 2,04,44,135/- made by AO on account of delayed payment of ESI/PF.
Whether on the facts and in the circumstances of the F case and in law the CIT(A) has erred in deleting the addition amounting to Rs. 2,04,44,135/- in violating of the provisions of Section 2(24)(x) r.w.s. 36(1)(va) on account of delayed payment of employee contributions towards PF/ESI.”
Perused the material before us and heard the arguments of ld. DR. Delay condoned.
TDS u/s 194:
The ld. CIT(A) has rightly deleted the difference of Rs.45,753/- was due to reason of TDS return filed by the client of assessee, post filing of the ITR by the assessee company. Hence, this issue calls no interference. The Revenue should not have filed appeal on this issue which is very apparent from the record.
Section 14A:
5. The assessee had no exempt income. By this time, this issue has reached a finality that no disallowance is called for in the absence of any exempt income claimed. The order of the ld. CIT(A) is affirmed.
3 Eagle Hunter Solutions Ltd. ESI/PF - Rs. 2,04,44,135/-:
6. The AO made addition u/s 36(1)(va) r.w.s. 2(24)(x) of the Income Tax Act, 1961. The ld. CIT(A) deleted the addition holding that the Assessing Officer has disallowed the employees contribution to ESI/PF not being deposited in time as provided in the statute. Placing reliance on the judgment in the case of CIT Vs. Alom Extrusion Ltd. (319 ITR 306), the ld. CIT(A) deleted the addition.
The issue of ESI/PF payment has attained finality by the order of the Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd. vs. CIT-I, vide order dated 12th October, 2022 wherein it was observed that employers have to deposit the employee's contribution towards EPF/ESI on or before the due date for availing deduction. In the cases before the Hon’ble Apex Court, the employers had belatedly deposited their employees' contribution towards the EPF and ESI, considering the due dates under the relevant provisions of the Act. The Assessing Officer ruled that by virtue of Section 36(1)(va) read with Section 2(24)(x) of the IT Act, such sums received by the appellants constituted "income". It was held that those amounts could not have been allowed as deductions under Section 36(1)(va) of the IT Act when the payment was made beyond the relevant due date under the respective acts. The Income Tax Appellate Tribunal and later the Gujarat High Court dismissed the challenge against this order of AO. In appeal, the court noted that the Hon’ble Kerala High Court has also ruled in favour of revenue on this issue whereas the Hon’ble High Courts of Bombay, Himachal Pradesh, Calcutta, Guwahati and Delhi
4 Eagle Hunter Solutions Ltd. have favoured the interpretation beneficial to the assessee. The Hon’ble Apex Bench effectively reversed the judgment in Commissioner of Income Tax vs. Alom Extrusions Ltd. (1 SCC 489) relied upon by the assessee.
The Hon’ble Apex Court in the case of Checkmate Services P. Ltd. vs. Commissioner Of Income Tax-I in CA No. 2833/2016 vide order dated 12.10.2022 observed that there is a marked distinction between the nature and character of the two amounts viz., the employers’ contribution and employees’ contribution required to be deposited by the employer. The first one is 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. The Hon’ble Apex Court held as under:
"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 43 B 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. 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, 5 Eagle Hunter Solutions Ltd. 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 non-obstante clause under Section 43 B 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."
As the issue of payment of employees contribution towards the PF has been ruled against the assessee by the Hon’ble Supreme Court, the appeal of the Revenue on this ground is allowed. The order of the ld. CIT(A) on this issue is reversed.
In the result, the appeal of the Revenue is partly allowed. Order Pronounced in the Open Court on 03/05/2024.