INDICA INDUSTRIES P.LTD,NEW DELHI vs. ACIT, CIRCLE 12(1), NEW DELHI

“53. The distinction between an employer’s contribution which is its primary liability under law – in terms of Section 36(1)(iv), and its liability to deposit amounts received by it or deducted by it (Section 36(1)(va)) is, thus crucial. The former forms part of the employers’ income, and the later retains its character as an income (albeit deemed), by virtue of Section 2(24)(x) - unless the conditions spelt by Explanation to Section 36(1)(va) are satisfied i.e., depositing such amount received or deducted from the employee on or before the due date. In other words, there is a marked distinction between the nature and character of the two amounts – 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. This marked distinction has to be borne while interpreting the obligation of every assessee under Section 43B. 54. 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 43B 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 Page | 2

ITA No. 2565/Del/2023 Indica Industries Pvt. Ltd 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 43B 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. 55. In the light of the above reasoning, this court is of the opinion that there is no infirmity in the approach of the impugned judgment. The decisions of the other High Courts, holding to the contrary, do not lay down the correct law. For these reasons, this court does not find any reason to interfere with the impugned judgment. The appeals are accordingly dismissed.” 5. This issue is also settled in favour of the revenue by the recent decision of Hon’ble Bombay High Court in the case of Rohan Kargawnker Vs. DCIT reported in Tax Appeal No. 7/2023 dated 07.02.2024. For the sake of convenience, the said order is reproduced below:-

“1. Heard Ms Priyanka Kamat for the Appellant and Ms S. Linhares 2. This is an appeal under Section 260A of the Income Tax Act, 1961 (IT Act) to challenge the orders made by the Assessing Officer, CIT (Appeals) and the ITAT, disallowing an adjustment under Section l4l(l)(a)(iv) read with Section 36 (l)(va) of the IT Act in respect of delayed remittance of employees’ contributions to Employee State Insurance (ESI) and Provident Fund (PF) for the assessment year 2018. 3. The ITAT, in this case, has noted that the Assesse failed to deposit contributions to ESI and PF in the employees’ accounts for the relevant assessment year before the due date under the PF/ESI Acts. However, such contributions were deposited before the Assesse filed returns under Section 139 (1) of the IT Act. The ITAT relying upon the decision of the Hon’ble Supreme Court in Chekmate Services Pvt. Ltd. & ors. V/s Commissioner of Income Tax & ors (2022) 448 ITR 518 (SC) held that based upon such delayed deposits, no adjustments or deductions could be claimed. 4. In Checkmate Services Pvt. Ltd. (supra), the Hon’ble Supreme Court considered the conflicting decisions on the subject and finally held that deductions or adjustments could be claimed only when the Assesse deposits the contribution before the due date provided under the Employees Provident Fund/Employee State Insurance Act. If the employees’ contributions are deposited after the due date set out under the said Act, there is no question of deduction or adjustment on the ground that such contributions were deposited before the filing of returns under Section 139(1) of the IT Act.

ITA No. 2565/Del/2023 Indica Industries Pvt. Ltd 5. The ITAT has relied upon Chekmate Services Pvt. Ltd. (Supra), and its reasoning is entirely consistent with the law laid down in Chekmate Services Pvt. Ltd. (supra). Therefore, no case is made to interfere with the AO, CIT(appeals), and ITAT decisions. 6. However, Ms Kamat submitted that Checkmate Services Pvt. Ltd. (Supra) was a matter where the assessment was made under Section 143(3) of the IT Act and not under Section 143 (1) (a) as in the present case. She also relied upon M/s P. R. Packaging Service V/s Assistant of Commissioner of Income Tax, ITA No. 2376/MUM/2022, decided by the ITAT 07/12/2022 to support her contention. 7. Though the decision cited was that of the ITAT, we have considered the same. In our judgment, however, the fact that the assessment order in Chekmate Services Pvt. Ltd. (supra) was incidentally under Section 143(3) and the assessment order in the present case is under Section 143(1)(a) of the IT Act, makes no difference to the principle involved in this matter. The ITAT decision does not discuss why this circumstance constitutes a distinguishing feature based on which the ratio of Checkmate Services Pvt. Ltd. (supra) could be departed from. 8. Checkmate Services Pvt. Ltd. (Supra) holds that the deductions can be claimed or adjustments can be made under section 141(1) (a) (iv), read with Section 36(1 )(va) only when the employer deposits the contributions in the employees’ accounts on or before the due date prescribed under the Employees Provident Fund /Employees State Insurance Act. In this case, admittedly, the contributions were deposited in the employees’ accounts beyond the due date. The circumstance that the assessment order was made under Section 143(1)(a) of the IT Act can make no difference. 9. Therefore, in our judgment, no substantial questions of law as proposed arise in this appeal. The concurrent decisions of the three authorities call for no interference. 10. This appeal is, accordingly, liable to be dismissed and is, hereby, dismissed with no order as to costs.”

ITA No. 2565/Del/2023 Indica Industries Pvt. Ltd 7. In the result, the appeal of the assessee is dismissed.

Order pronounced in the open court on 20/03/2024. -Sd/- -Sd/- (C. N. PRASAD) (M. BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 20/03/2024 A K Keot Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi