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Facts
The assessee appealed against an assessment order which made an addition of Rs. 1,750,023/- for delayed deposit of employees' contribution towards Provident Fund (EPF) beyond due dates, under Section 36(1)(va) of the Income Tax Act, 1961. The appeal also covered issues related to income assessed under Section 143(1), non-consideration of Section 43B(b), and interest levies under Sections 234B & 234C.
Held
The Income Tax Appellate Tribunal dismissed the appeal, holding that the issue of delayed payment of employees' contribution to EPF/ESI has been settled by the Hon'ble Supreme Court in Checkmate Services Pvt. Ltd. The Supreme Court clarified that such contributions, being held in trust, must be deposited on or before the due dates mandated by the relevant welfare enactments to be eligible for deduction, irrespective of Section 43B.
Key Issues
Whether delayed deposit of employees' contribution to Provident Fund (EPF) and Employees' State Insurance (ESI) is deductible under the Income Tax Act, 1961, and the applicability of Section 43B in such cases.
Sections Cited
36(1)(va), 2(24)(x), 43B, 143(1), 234B, 234C
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Income Tax Appellate Tribunal, DELHI BENCH ‘SMC’, NEW DELHI
Before: Dr. B. R. R. Kumar
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘SMC’, NEW DELHI Before Dr. B. R. R. Kumar, Accountant Member Asstt. Year : 2021-22 Superwell Services Pvt. Ltd., Vs. ACIT, 3, Lajpat Nagar, Circle-22(2), New Delhi-110024 New Delhi (APPELLANT) (RESPONDENT) PAN No. AASCS0503K Assessee by : None Revenue by : Sh. Om Parkash, Sr. DR Date of Hearing: 28.03.2024 Date of Pronouncement: 02.04.2024 ORDER The present appeal has been filed by the assessee against the order of ld. Addl./JCIT(A)-8, Mumbai dated 26.12.2023. 2. Following grounds have been raised by the assessee:
“1. The learned assessing officer has erred in assessing the income of the assessee at Rs. 4,744,900/- as against the returned income of Rs.2,994,874/-by the appellant.
The learned assessing officer has erred in making the addition of Rs. 1,750,023/- on account of delay in payment of employees' contribution towards Provident Fund (EPF) beyond the due dates u/s 36(1)(va) of the Income Tax Act, 1961.
3. The learned Commissioner of Income Tax (Appeals) erred in confirming the Income determined/assessed u/s 143(1) 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.
2 Superwell Services Pvt. Ltd. 5. 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. 6. The learned assessing office has erred in levying the interest u/s 234B & 234C of the Income Tax Act, 1961.”
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 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.
3 Superwell Services Pvt. Ltd.
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, 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 4 Superwell Services Pvt. Ltd. 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 assessee on this ground is liable to be dismissed.
In the result, the appeal of the assessee is dismissed. Order Pronounced in the Open Court on 02/04/2024.