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Facts
The assessee company filed an appeal challenging the disallowance of Rs. 63,31,699/- for late deposit of employee contributions to PF/ESI. The assessee admitted that the deposits were made after the due dates but before the filing of the return of income.
Held
The tribunal referred to the Supreme Court's decision in Checkmate Services Pvt. Ltd. vs. CIT, which held that the employee's contribution to PF/ESI, if not deposited on or before the due date, cannot be allowed as a deduction. The tribunal noted that previous decisions relied upon by the assessee were rendered before this Supreme Court ruling.
Key Issues
Whether the disallowance of employee's contribution to PF/ESI for late deposit, when made before the return filing date, is valid.
Sections Cited
143(1)(a)(iv), 36(1)(va), 43B, 2(24)(x)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH “A”: NEW DELHI
INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “A”: NEW DELHI BEFORE SHRI M. BALAGANESH, ACCOUNTANT MEMBER AND SHRI ANUBHAV SHARMA, JUDICIAL MEMBER ITA No. 438/Del/2023 (Assessment Year: 2019-20) Ansal Housing Ltd, Vs. ACIT, 606, 6th Floor, Indra Circle-1(1), Prakash, 21, Barakhamba New Delhi Road, New Delhi (Appellant) (Respondent) PAN: AAACA0377R Assessee by : Shri Gaurav Jain, Adv Shri Sudarshan Roy, Adv Revenue by: Shri Kanv Bali, Sr DR Date of Hearing 31/10/2023 Date of pronouncement 10/01/2024
O R D E R PER M. BALAGANESH, A. M.: 1. The appeal in ITA No.438/Del/2023 for AY 2019-20, 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/S250/2022-23/1048249308(1) dated 26.12.2022 against the order of assessment passed u/s 143(1) of the Income-tax Act, 1961 (hereinafter referred to as „the Act‟) dated 30.10.2020 by the Assessing Officer, Asst Director of Income Tax, CPC, Bengaluru (hereinafter referred to as „ld. AO‟).
The assessee has raised additional ground vide letter dated 31.10.23 which is as under:-
“1.That on the facts and circumstances of the case and in law the ld. CIT(A) erred in upholding the intimation dated 30.10.2020 u/s 143(1) of the Act passed by the Respondent making an adjustment amounting to Rs 63,31,699/- u/s 36(1)(va) of the Act being the disallowance on account of late deposit of Employees contribution towards ESI / PF accounts by the Appellant failing to appreciate that no disallowance of expenditure on this score was in fact indicated by the Tax Page | 1
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Auditor in the tax audit report which is a pre-requisite to invoke section 143(1)(a)(iv) of the Act.” 3. We find that the original grounds and additional ground raised by the assessee is only challenging the disallowance made on account of Employees Contribution to PF / ESI amounting to Rs 63,31,699/-. The additional ground raised by the assessee is a legal issue going to the root of the matter and facts relevant for adjudication of the same are already on record. Hence the same is admitted and taken up for adjudication along with the original grounds raised by the assessee.
We have heard the rival submissions and perused the materials available on record. At the outset, it was submitted by the ld AR that it is not in dispute that the employees‟ contribution to provident fund and ESI were deposited by the assessee to the Government account beyond the due dates prescribed under the respective acts but well before the date of filing the return of income. The ld. AR also submitted the chart of employee‟s contribution to PF / ESI being remitted for various months on various dates. We find that the recent decision of the Hon'ble Supreme Court in the case of Checkmate Services Pvt. Ltd Vs. CIT reported 448 ITR 518 had settled the entire dispute to rest by deciding it in favour of the revenue by observing as under:-
“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
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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 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.”
The ld. AR vehemently relied on the decision of the Co-ordinate Bench of Mumbai Tribunal in the case of P.R. Packaging Services in ITA No.2376/Mum/2022 dated 07/12/22 wherein this issue has been decided in favour of the assessee. We find that the said decision was rendered by applying the provisions of Section 143(1)(iv) of the Act. Pursuant to the aforesaid decision of the Hon‟ble Supreme Court, the claim of deduction towards employee‟s contribution to PF & ESI made by the assessee becomes an incorrect claim warranting prima facie adjustment u/s.143(1) of the Act. Hence, the decision relied by the ld. AR would not advance the case of the assessee. With regard to yet another decision relied by the ld.AR on the decision of Mumbai Tribunal in the case of Kalpesh Synthetics Pvt Ltd vs DCIT in ITA No. 1785/Mum/2021 dated 27.04.2022, we find that this
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decision was rendered before the decision of Hon‟ble Supreme Court and hence the reliance placed on the said tribunal decision also would not advance the case of the revenue. Pursuant to the aforesaid decision of Hon‟ble Supreme Court, the claim of deduction made by the assessee towards employees‟ contribution to PF and ESI would become an incorrect claim warranting prima facie adjustment u/s 143(1) of the Act. However, it would be relevant to consider the date of disbursement of salary by the assessee to its employees which would determine the due date of remittance of PF / ESI as per the respective Acts. Hence we deem it fit and appropriate to restore the appeal to the file of ld. AO qua the grounds raised before us for denovo adjudication in accordance with law and also in the light of the aforesaid decision of Hon‟ble Supreme Court. The assessee is at liberty to furnish fresh evidences, if any, in support of its contentions qua the issue in dispute before us. Accordingly, the grounds raised by the assessee are allowed for statistical purposes.
In the result, appeal of the assessee is allowed for statistical purposes.
Order pronounced in the open court on 10/01/2024.
-Sd/- -Sd/- (ANUBHAV SHARMA) (M. BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 10/01/2024 A K Keot Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi