MUNIYALLAPPA BHARATHI,BANGALORE vs. INCOME TAX OFFICER, WARD 4(3)(3), BANGALORE

Briefly stated the facts of the case are that assessee filed return of income on 13.03.2020 declaring income under the head profits & gains of business or profession of Rs.6,82,875. The case was processed on 07.07.2020 u/s. 143(1) and disallowance made u/s. 36(1)(va) of Rs.23,03,250 for delayed remittance of employees contribution to PF/ESI as per tax audit report in Form 3CD at sl. No.20(b). Aggrieved, the assessee filed appeal before the CIT(Appeals).

The ld. CIT(Appeals) after relying on the judgment of Hon’ble Apex Court in the case of Checkmate Services Pvt. Ltd. [2022] 143 taxmann.com 178 (SC) dated 12.10.2022 dismissed the appeal of the assessee. Against this, assessee is in appeal before the ITAT.

The ld. AR reiterated submissions made before the CIT(Appeals) and submitted that as per clause 38 of the EPF scheme the due date for employees contribution is 15 days from the end of the month of actual disbursement of wages. The assessee deposited the employees contribution before filing return of income. Therefore section 43(b) will apply before the amendment to section 36(1)(va). He further submitted that the due date for remitting employees contribution should be considered from the actual date of payment of salary/wages. However, the tax auditor has wrongly reported in Form 3CD the due date. The actual delayed amount towards employees contribution is Rs.11,03,328 instead of Rs.23,03,258 and it includes employer’s contribution in the tax audit report. The ld. AR further submitted that no addition can be made u/s 143(1)(a) while processing the return. In support of his arguments, he relied on the following judgments:-

The ld. DR relied on the order of lower authorities and submitted that the Hon’ble Apex Court has settled this issue in favour of revenue which has been relied by the ld. CIT(Appeals). The due date has been considered by the Apex Court which is a higher forum and hence the judgments relied on by the ld. AR is not applicable for the present facts of the case. The amendment made to section 36(1)(va) is substantive provisions applicable for impugned assessment year. The adjustment u/s 143(1)(a)(ii) states that if there is incorrect claim, if such incorrect claim is apparent from any information in the return. The audit report is part and parcel of the income tax return. He further submitted that the coordinate Bench of the Tribunal has decided the issue in favour of the revenue in to 580/Bang/2023 for AYs 2018-19 to 2020-21 dated 29.11.2023.

Considering the rival submissions we note that assessee filed return of income on 13.03.2020 and it was processed u/s. 143(1) on 07.07.2020 and disallowance was made for belated remittance of employees’ and employer’s contribution to PF/ESI as reported in Form 3CD at sl.no.20(b). The CIT(Appeals) has referred to the Hon’ble Apex Court judgment in the case of Checkmate Services P. Ltd. (supra) and decided the issue in favour of revenue. During the course of hearing the ld. DR has relied on judgment of coordinate Bench in to 580/Bang/2023 noted supra in which it has been held as under:-

Mode of payment of contributions (1) The employer shall, before paying the member his wages in respect of any period or part of period for which contributions are payable, deduct the employee's contribution from his wages which together with his own contribution as well as an administrative charge of such percentage [of the pay (basic wages, dearness allowance, retaining allowance, if any, and cash value of food concessions admissible thereon) for the time being payable to the employees other than excluded employee and in respect of which provident fund contribution payable, as the Central Government may fix. He shall within fifteen days of the close of every month pay the same to the fund [electronic through internet banking of the State Bank of India or any other Nationalized Bank] [or through PayGov platform or through scheduled banks in India including private sector banks authorized for collection on account of contributions and administrative charge: (2) The employer shall forward to the Commissioner, within twenty-five days of the close of the month, a monthly abstract in such form as the Commissioner may specify showing the aggregate amount of recoveries made from the wages of all the members and the aggregate amount contributed by the employer in respect of all such members for the month: Provided that an employer shall send a Nil return, if no such recoveries have been made from the employees : 2.3 Upon perusal of the above, it is clear that the employer, before paying the wages, shall deduct the employee’s contribution from such wages. The employer then shall pay such amount collected, along with his own contribution, within 15 days of the close of every month. The use of the expression “before paying the wages”, would mean that the deduction of contribution is at the stage of payment of wages. The amount so deducted shall be paid within 15 days from the close of the month. On a harmonious construction, the term ‘month’ has to be construed to be the month in which the wages are paid. 2.4 In this connection, reliance is placed on the decision of the Kolkata Bench of the Tribunal in Kanoi Paper & Industries Ltd. v. Asstt. CIT [2002] 75 TTJ 448 (Cal.), wherein it is held as under: 6. Clause 38 of the Employees’ Provident Fund Scheme, 1952, fixes the time limit for making payment in respect of contribution to the provident fund to be 15 days from the close of the month concerned. However, the issue here is whether the "month" should be considered to be the month which the wages relates or the month in which the actual disbursement of the wages is made, we are of the considered opinion that the expression "month" should mean here the month during which the wages/salary is actually disbursed irrespective of month to which the same relates. Thus, the scheme of the Government in this regard is that once a deduction is made in respect of the employees’ contribution to the provident fund from the salary/wages of the employee or the employer also makes his contribution, factually at the time of disbursement of the salary the payment in respect of such contribution should be made forthwith. if for some reason or other the payment of salary for a particular month be held up for considerable period of time it cannot be said that the employer would be liable to make payments in respect of the "employer’s" as well as "employees" contribution in respect of wages for such period within a period of 15 days from the close of the month to which the wages relates. On the other hand, in our view, most appropriate interpretation would be that the employer would be at liberty to make payment of the contribution concerned within 15 days (subject however to the further grace period) from the end of the month during which the disbursement of the salary is actually made and the contribution of the provident fund are, thus, generated, inasmuch as, the provision relating to the disallowance of such contribution on account of delay is rather an artificial provision. In our view, a liberal approach has got to be made to this issue. Ultimately, therefore, we reverse the order of the lower authorities and direct the Assessing Officer to examine whether the payments of contribution in the present case were made within 15 days (allowed with further grace period of 5 days) from the close of the respective months during which the disbursement of the salary/wages were actually made. The Assessing Officer should recompute the amount disallowable, if any, on the above basis and take appropriate action accordingly. 2.5 Considering the above decision, the Bangalore Bench of the Tribunal in MTR Maiya’s v ITO (2023) 152 taxmann.com 189 (Bang-Trib) has remitted the issue on examining the aspect of due date, to the file of the AO. The relevant observations of the Tribunal are as follows: “In view of the above, we remit this issue to the AO with a direction to examine and decide the issue in the light of the above judgement. Accordingly this issue is allowed for statistical purpose.” 2.6 In the present case, the salary payments, which were due for a particular month, have been paid in the immediately subsequent month. This fact, as an instance, is proved by referring to the payment advice submitted to the Appellant’s banker to disburse salaries to various employees for the month of February 2018 vide cheque dated 07.03.2018, which is enclosed as Annexure 1. Therefore, the term ‘month’ should be considered as the month during which the salary is actually disbursed irrespective of the month to which the same relates to. 2.7 This aspect of when is the ‘due date’ for payment, has not been examined by the CIT(A) although the PF rules were extracted. These were obviously not examined when the intimation was passed as this was a ‘machine driven’ exercise under the CPC scheme. In the instant case, if the due date of PF payment is reckoned as above, there would be no delay in remittance in the vast majority of cases. Relief is accordingly due to the appellant. 3 Conclusion: 3.1 The above submissions represent an abstract of our detailed submissions filed earlier on 11.10.2023. This submission has to be read along with the said previously filed submissions. In view of the above, the Appellant prays that the order passed by the learned CIT(A) be quashed or in the alternative, the aforesaid grounds and relief prayed for thereunder be allowed. The Appellant submits accordingly.” Similar and identical arguments has been raised by the assessee in all the appeals under consideration. 8.3 The ld. A.R. in the paper book dated 11.10.2023 has placed relevant Acts of Provident Fund in order to appreciate the above arguments raised. He has also furnished paper books containing additional evidences for admission with a prayer to consider the additional evidences in light of section 38 of the Provident Funds Act.

On the contrary, the ld. D.R. placed reliance on the decision of Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd. cited (supra) to submit that elaborate analysis has been made by Hon’ble Supreme Court to justify the disallowance made u/s 36(1)(va) of the Act in case of the present assessee. The ld. D.R.

We have perused the submissions advanced by both sides in the light of various decisions relied by both sides. 10.1 In the present facts of the case, the assessees are proprietary concern, engaged in the business of manpower supply for the years under consideration. Admittedly in the audit report filed along with return of income, the assessee had mentioned the details in respect of the contributions failed to be deposited with the statutory funds within the due date. The CPC after issuing communication to the assessee, made disallowance of such contributions in the hand of the assessee for the years under consideration in an intimation issued u/s 143(1)(a) of the Act. It is the contention of the ld. A.R. that at the time when disallowance was made, this issue was covered by the jurisdictional High Court in the favour of assessee by the decision in case of Essae Teraoka (P) Ltd. v. DCIT reported in (2014) 43 taxmann.com 33, according to which, since the deposit to the respective funds was made before the due date of filing the respective fund was made before the due date of filing of the original return of income, any delay that happened stood condoned. 10.2 Subsequently, by virtue of the decision of Hon’ble Supreme Court in case of Checkmate Services Pvt. Ltd. cited (supra), the ratio has been laid down that any delay in depositing the employees contribution to the respective funds by an employer would amount to disallowance u/s 36(1)(va) of the Act of such contribution. Further, it is a trite law that any ratio expressed by Hon’ble Supreme Court would relate back to the time from which the provision has been enacted and therefore, such law declared by Hon’ble Supreme Court was retrospectively applicable, and the decisions rendered by various Hon’ble High Courts favouring assessee would be of no benefit at that stage. 10.3 The ld. A.R. though did not dispute this position submitted that, what would be the due date for deposit of the employees’ contribution to the PF would have to be computed from the date when the employer pays salary to such employees. He has referred to section 38 of the Employees Provident Fund and Miscellaneous Provisions Act, 1952 in his argument in support. 10.4 He thus submitted that in terms of section 38 of the Act, Employees provident fund and Miscellaneous Provisions Act, 1952 refers to the time limit for depositing the contribution within 15 days of the close of the month must be to the month in which the salary payment is made. He submitted that the entire additional evidence filed before this Tribunal establishes that there is a delay in paying salary to the employees and therefore, if that is taken into consideration, there cannot be any delay that would be attributable towards the deposit of employees’ contribution to the relevant fund. He also submitted only a minor amount would fall within the purview of disallowance u/s 36(1)(va) of the Act. The ld. A.R. thus prayed that the additional evidence filed by assessee may be admitted and the issue may be remanded to the ld. AO for necessary verification based on such additional evidences. 10.5 At the request of the ld. A.R., we had directed the ld. D.R. to carry out necessary verifications and sufficient time was granted to the ld. D.R. in order to respond to the additional evidence filed by assessee. 10.6 The ld. D.R. after going through the entire additional evidences submitted that, apparently the dates have been shifted and therefore, there is delay only in respect of few contributions. However, the ld. D.R. submitted that had this to be the case, why would the auditor in the audit report give different dates. He raised the concern in respect of the same by submitting that merely because there were decisions of jurisdictional High Court which was in favour of the assessee during the relevant period would not support the auditor to tinker with the actual date of payment of salary and actual deposit of employees’ contribution with the relevant fund. He submitted that all these evidences now tendered by the assessee are mere after thought and therefore, cannot be entertained. He also submitted that these arguments or submissions are raised by the assessee for the first time before this Tribunal. 10.7 After considering the above submissions by both sides, we are compelled to analyze the provisions of Provident Fund Act relied by the ld. A.R. which is filed at the paper book pages 58 to 198 filed on 11.10.2023. Section 38 of the Employees Provident Fund Act reads as under: “Section 38 of the Employees Provident Funds and Miscellaneous Provisions Act, 1952, becomes relevant. Sub- section (1) thereof reads as under: The employer shall, before paying the member his wages in respect of any period or part of period for which contributions are payable, deduct the employee's contribution from his wages which together with his own contribution as well as an administrative charge of such percentage [of the pay (basic wages, dearness allowance, retaining allowance, if any, and cash value of food concessions admissible thereon) for the time being payable to the employees other than an excluded employee, as the Central Government may fix. He shall within fifteen days of the close of every month pay the same to the fund "electronic through internet banking of the State Bank of India or any other Nationalized Bank authorized for collection" on account of contributions and administrative charge]: "Provided that the Central Provident Fund Commissioner may for reasons to be recorded in writing, allow any employer or class of employer to deposit the contributions by any other mode other than internet banking" 10.8 The above provision requires an employer to deduct the employees’ contribution before paying the employee his wages and further requires to deposit such contribution withheld by the employer along with employer’s own contribution to the relevant fund held by the Government. It is further requires that the employer shall within 15 days of the close of every month pay the same to such fund along with administrative charges. It is thus, clear that after deducting the employees’ contribution towards the fund the same has to be deposited with the Government within 15 days of the close of every month. In our opinion, reference to 15 days of the close of every month has to be in relation to the month during which the payment of wages is to be made and the corresponding liability to deduct employees’ contribution to such fund immediately arises. Further, the expression “within 15 days of the close of every month”, therefore, must be interpreted as having reference to the close of the month for which the wages are required to be paid with corresponding date to deduct employees’ contribution and to deposit the same with the relevant fund. 10.9 On perusal of section 38 of the Employees Provident Fund & Miscellaneous Provisions Act, 1952, the phrase used in respect of the wages that an employer is supposed to pay to an employee for any period or part of period, are represented as, contributions that are “payable”. This means, the legislature is very clear in its intent that the employer is supposed to deduct the contributions in respect of the funds at the end of the month when the employee is eligible to receive his or her wages and the employer is cast upon with the duty to pay the necessary dues. The section 38 therefore, envisages that, at the end of every month when the employer is due to make the payment to such employees, the necessary contributions have to be deducted and deposit within 15 days of such deductions. With such an understanding, the argument advanced by the ld. A.R. cannot be appreciated that, in a case the salary or wages are paid in a subsequent month, the liability to deposit the employees’ contribution to the fund gets deferred by another month. 10.10 The dictum laid down by Hon’ble Supreme Court in case of Checkmate Services Pvt. Ltd. Cited (supra) is that section 38 of the Employees Provident Fund and Miscellaneous Provisions Act, 1952 makes it obligatory for the employer before paying and employee the wages or salary to deduct the employees’ contribution. Thus, to analyze in the form of an example assuming a circumstance that the employer does not make payment of salary/wages to the employees for 2 to 3 consecutive months. This does not mean that the employer gets the benefit of depositing the employees’ contribution of such months for which the salary was not paid on time to such employees will get shifted. That would render the entire provision otios and is not the intention of the legislature also. 10.11 We have carefully gone through the additional evidences for all the years under consideration and note that such shifting of depositing the contribution on behalf of the employees by the assessee is not in consonance with the provisions of section 38 as observed herein above and argued by the ld. D.R. 10.12 In additional ground No.3, the argument of ld. A.R. is that audit report originally filed by the assessee is wrong as the auditor mentioned single date of remittance though there were multiple dates of remittances in each month. 10.13 The ld. A.R. pleaded before us that audit report is wrongly prepared by the tax auditor for which there is no evidence brought on record regarding any confirmation from the tax auditor. In our opinion, such arguments to tarnish a professional is not appreciated. Based on the above discussion, we do not find any merit to consider the same. 10.14 We, therefore, do not find any merit in the new argument raised by the assessee in additional ground No.2 requesting to remand the issue back to the Ld. AO to verify the claim of disallowance in the light of the additional evidences filed by assessee. We, therefore, dismiss additional ground No.2 raised the assessee, as such argument is not in consonance with the provisions of Section 38 under Employees Provident Fund and Miscellaneous Provisions Act, 1952. Accordingly, the additional ground nos. 2-3 raised by assessees stands dismissed in all the appeals. 10.15 In the main ground No.2, the assessee has commonly raised the following issue, which has been reproduced from ITA No.578/Bang/2023. “2. Grounds relating to disallowance of employee contribution to provident fund 2.1. The learned CIT(A), NFAC, Delhi erred in confirming the disallowance of employee contribution to provident fund amounting to Rs.77,17,455 in computing the business income of the appellant under Chapter IVD of the Income tax Act, 1961. 2.2. The learned CIT(A), NFAC, Delhi erred in not appreciating that the employee contribution to provident fund amounting to Rs. 77,17,455 was paid within the due date as per section 139(1) of the Act. 2.3. The learned CIT(A), NFAC, Delhi erred in not appreciating that employee contribution to provident fund cannot be disallowed as it was paid within the due date as per section 139(1) of the Act. 2.4. On facts and circumstances of the case and law applicable, addition of Rs.77,17,455 to business income should be deleted.” 10.16 The above issue is now settled by the decision of Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd. cited (supra), which has been followed by the ld. CIT(A) while considering the appeals of the assessees. We do not find any infirmity in the same and the same is upheld. Accordingly, the main grounds raised by the assessees for all the years under consideration also stands dismissed. In the result, all the appeals filed by the assessees stands dismissed.”

The entire argument made by the ld. AR has been considered in the above decision and respectfully following the same, we hold that employees’ contribution deposited belatedly as reported in the tax audit report is decided in favour of the revenue. Since during the course of hearing the ld. AR submitted that in the tax audit report employees’ and employer’s contribution both have been included, therefore for verification and decision as per law, we remit this issue to the AO and the assessee is directed to submit the details of delayed remittance of employer’s contribution.

In the result, the appeal of the assessee is partly allowed in the above terms.