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Facts
The assessee challenged the CIT(A)'s order which upheld the AO's disallowance of employee contributions to Provident Fund (PF) and Employees' State Insurance (ESI). The lower authorities either disallowed all PF/ESI payments, including those reportedly made within due dates, or concluded that all payments were beyond the due dates.
Held
The Tribunal, relying on the Supreme Court's ruling in Checkmate Services Pvt. Ltd. v. CIT-I, affirmed that employee contributions to PF/ESI are deductible only if deposited by the statutory due dates. Payments made beyond these dates are not allowable. However, the Tribunal also directed the Assessing Officer to verify the assessee's claim of certain payments being made within due dates and allow such deductions after due verification.
Key Issues
Whether employee contributions to PF and ESI, if deposited beyond statutory due dates, are allowable deductions, and whether the lower authorities erred in not considering evidence for payments made within due dates.
Sections Cited
Income Tax Act, Section 36(1)(va), Section 2(24)(x), Section 43B
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Income Tax Appellate Tribunal, DELHI BENCH ‘H’, NEW DELHI
Before: Dr. B. R. R. KumarSh. Anubhav Sharma
ORDER
Per Dr. B. R. R. Kumar, Accountant Member:
The present appeal has been filed by the assessee against the order of ld. CIT(A)-30, New Delhi dated 14.03.2023. 2. Following grounds have been raised by the assessee:
“1. That on the facts and circumstances, the order the of the Learned Commissioner of Income-tax (Appeals)-30, Delhi ['Ld. CIT(A)'] and Learned ACIT NFAC, New Delhi ['Ld. AO'] are erroneous and bad in law.
That on the facts and circumstances of the case, the Ld. CIT(A) erred in upholding the addition made by the Ld. AO, in considering PF and ESI paid within the due dates also as a disallowance.
That on the facts and circumstances of the case, the Ld. CIT(A) erred in concluding that all the PF and ESI payments are beyond due dates without considering the evidences provided.”
2 Zhongfu Mobile P. Ltd. The issue of ESI/PF payment has attained finality by the 3. 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.
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’ 3 Zhongfu Mobile P. Ltd. 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 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.
4 Zhongfu Mobile P. Ltd. 5. 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.
The ld. AR submitted that there are certain payments which are duly paid within the due date permissible as per the Act. The AO may verify the details furnished at page nos. 88 & 89 of the paper book and may deduct these amounts after due verification of the challans.