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Facts
The assessee appealed against an addition of Rs. 4,65,87,733/- made under Section 36(1)(va) for delayed remittance of employee contributions to PF and ESI for AY 2018-19. The contributions were remitted beyond the due dates prescribed under the respective Acts but within the due date for filing the return of income under Section 139(1) of the Act. A small portion of Rs. 6,20,890/- relating to ESI for September 2017 was remitted one day late due to a public holiday, which the assessee claimed should be covered by the General Clauses Act.
Held
The tribunal, relying on the Supreme Court's decision in Checkmate Services Ltd. and the Bombay High Court's ruling in Rohan Kargawnker, upheld the principle that deductions for employee contributions to PF and ESI are permissible only if deposited on or before the due dates prescribed under the respective Acts, irrespective of the return filing due date. Consequently, the addition of Rs. 4,65,87,733/- was largely justified. However, the specific sum of Rs. 6,20,890/- for ESI was remanded to the Assessing Officer for verification of whether the delayed remittance due to a public holiday falls under the General Clauses Act.
Key Issues
Whether delayed remittance of employee contributions to PF and ESI beyond the statutory due dates, but before the income tax return filing due date, is allowable as a deduction under the Income Tax Act.
Sections Cited
154, 36(1)(va), 139(1), 2(24)(x), 43B
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH “C”: NEW DELHI
Before: SHRI M. BALAGANESH & SHRI ANUBHAV SHARMA
INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “C”: NEW DELHI BEFORE SHRI M. BALAGANESH, ACCOUNTANT MEMBER AND SHRI ANUBHAV SHARMA, JUDICIAL MEMBER ITA No. 1482/Del/2021 (Assessment Year: 2018-19) Kutumbh Care Pvt. Ltd, Vs. ITO, 216A, 2nd Floor, Gautam Ward-14(4), Nagar, New Delhi Delhi (Appellant) (Respondent) PAN:AADCK0946K
Assessee by : Shri Vinod Kumar Garg, CA Revenue by: Shri Sandip Kumar Mishra, Sr. DR Date of Hearing 06/03/2024 Date of pronouncement 11/03/2024
O R D E R PER M. BALAGANESH, A. M.: 1. The appeal in ITA No.1482/Del/2021 for AY 2018-19, arises out of the order of the National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as „ld. CIT(A)‟, in short] in Appeal No. ITBA/NFAC/S/250/2021- 22/1035074900(1) dated 25.08.2021 against the order of assessment passed u/s 154 of the Income-tax Act, 1961 (hereinafter referred to as „the Act‟) dated 27.07.2020 by the Assessing Officer, ADIT, CPC, Bangalore.
The assessee has raised the following grounds of appeal :-
“1. That the order passed by Ld. CIT (A) NFAC, in concurring with order of Ld. AO (CPC. Bangalore) is bad in law, illegal, Perverse and against the facts and circumstances of present case, statutory provisions, established principles of law and principles of natural justice and thus need to be quashed. 2.1 That on the facts and circumstances of the case and in law the Ld. CIT (A) NFAC erred in sustaining the addition of Rs. 4,65,87,733/- made u/s 36(1)(va) on account of Employee Contribution in ESI and PF.
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2.2 Alternatively and without prejudice to above the appellant disputes the quantum of addition made. 3. That the appellant craves leave to add, delete or amend any of the grounds of appeal on or before the disposal of the same.”
The only effective issue to be decided in this appeal is with regard to addition made on account of employees contribution to PF and ESI in the sum of Rs. 4,65,87,733/-.
We have heard the rival submissions and perused the material available on record. At the outset, it is not in dispute that the assessee had remitted the employee’s contribution to PF and ESI beyond the due dates prescribed under the respective PF and ESI Acts but within the due date of filing of return of income u/s 139(1) of the Act. The details of various remittances made thereon are enclosed in pages 35 to 37 of the Paper Book in the tax audit report. The said details contain remittance made within the due date and remittance made beyond the due date under the respective PF and ESI Acts. The addition has been made only in respect of remittance made beyond the due date prescribed under the respective Acts. However, the ld AR before us made a plea that a sum of Rs. 6,20,890/- for the month of September, 2017 in respect of ESI was remitted by the assessee on 16.10.2017, though the due date was 15.10.2017 and 15.10.2017 happened to be a public holiday. Accordingly, remittance made on 16.10.2017 i.e. on the immediately succeeding day would be covered by the exception provided under the General Clauses Act. The facts stated by the ld AR required to be verified, hence, we deem it fit and appropriate to restore to the file of the ld AO only for the limited purpose of verification of the same in respect of Rs. 6,20,890/- towards ESI dues for September, 2017 to examine whether the same
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had been deposited within the due date prescribed under the ESI Act read with together with provision of General Clauses Act.
With regard to remaining sums, the issue is squarely covered in favour of the revenue by the recent decision of the Hon'ble Supreme Court in the case of Checkmate Services Ltd Vs. CIT reported 448 ITR 518 reproduced 53, 54 and 55 thereon.
“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. 7. 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 or before the due dates mandated by such concerned law, that the amount which is otherwise retained, and deemed an income, is treated
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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.” 8. Since, the issue is settled by the decision of Hon'ble Supreme Court, the various decisions related upon by the ld AR on the coordinate benches of various Tribunals and Hon’ble High Courts would have no legs to stand. Further, the stand taken in various tribunal orders were also subject matter of adjudication by the recent decision of the 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
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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. 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.”
In view of the aforesaid observations and respectfully following the judicial precedents of Hon'ble Supreme Court and Hon’ble Bombay
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High Court, we hold that the addition made in the sum of Rs. 4,65,87,733/- on account of employees contribution to PF and ESI is duly justified except in sum of Rs. 6,20,890/- which has been set aside to the file of the ld AO for verification in the manner mentioned hereinabove. Accordingly, grounds raised by the assessee are disposed of with the abovementioned terms.
In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the open court on 11/03/2024. -Sd/- -Sd/- (ANUBHAV SHARMA) (M. BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 11/03/2024 A K Keot Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi