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Facts
The assessee, engaged in municipal solid waste management, filed their income tax return declaring Rs. 49,77,940/-. The CPC processed the return and proposed an adjustment u/s 143(1)(a) of the Act, leading to a disallowance of Rs. 35,90,774/- for belated employee contributions to PF & ESI.
Held
The Tribunal held that Section 36(1)(va) and Section 43B(b) of the Income Tax Act operate differently regarding due dates for employee and employer contributions. Failure to deposit employee contributions by the prescribed due date results in permanent negation of deduction, as per the Supreme Court's decision in Checkmate Services Pvt. Ltd. vs. CIT.
Key Issues
Whether the disallowance of employee contributions to PF & ESI, paid after the statutory due date but before the return filing date, is justified.
Sections Cited
36(1)(va), 43B(b), 139(1), 143(1), 234A, 234B, 234C, 44AB
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “B’’ BENCH: BANGALORE
Before: SMT. BEENA PILLAI & SRI LAXMI PRASAD SAHU
PER BEENA PILLAI, JUDICIAL MEMBER:
This appeal by the assessee is directed against order of NFAC passed u/s 250 of the Income Tax Act, 1961 (in short “The Act”) dated 30.12.2023 for the assessment year 2019-20. The assessee has raised following grounds of appeal:
1. The orders of the authorities below in so far as they against the appellant are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case.
2. The learned Addl/Joint Commissioner of Income tax [Appeals] is not justified in disposing off the appeal based on the submissions made earlier without allowing sufficient and real opportunity to the appellant to represent the case in response to notice issued for which the appellant had sought adjournment under the facts and in the circumstances of the appellant's case.
3. The learned Addl/Joint Commissioner of Income tax [Appeals] DELHI/ National Faceless Appeal Centre [NFAC for short] is Sri Panati Vinaykumar, Bengaluru Page 2 of 6 not justified in upholding the determination of total income of appellant in the Intimation u/s. 143[1] of the Act, at Rs. 85,68,710/- as against the returned income of Rs.49,77,940/- and thereby making an addition of Rs. 35,90,774/- u/s.36[1][va] of the Act, allegedly based upon the disallowance indicated in the Tax Audit Report of the Chartered Accountant in Form 3CD, under the facts and in the circumstances of the appellant's case.
4. The learned Addl/Joint Commissioner of Income tax [Appeals] - 7, DELHI / NFAC ought to have appreciated that there was no disallowance u/s 36[1][va] of the Act indicated in the Tax Audit Report as mere details of the payments made were set-out and therefore, the impugned addition made u/s. 143[1] of the Act is utside the scope of the adjustments capable of being made u/s 143[1][a][iv] of the Act and therefore, the same deserves to be deleted.
5. The learned Addl/Joint Commissioner of Income tax [Appeals] - 7, DELHI /NFAC failed to appreciate that the due date for making payment of the employee's contribution, would fall in the month, following the actual disbursal of the salary and the due date as per the Provident fund act, was not the 15 th day, of each calendar month as indicated in the audit report and therefore, the addition made was misconceived, under the facts and in the circumstances of the case. 6. The learned Addl/Joint Commissioner of Income tax [Appeals] - 7, DELHI /NFAC failed to appreciate that the intimation issued by the learned Assessing Officer under section 143[1] of the Act was bad in law, since the adjustment made was beyond the scope of the act, under the facts and in the circumstances of the case. 7. Without prejudice to the right to seek waiver with the Hon’ble CCIT/DG, the appellant denies himself liable to be charged to interest u/s 234A, 234B and 234C of the Act, as computed in the intimation u/s.143[1] of the Act, which under the facts and in the circumstances of the appellant's case deserves to be cancelled. 8. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed arid Justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs.
On merits of the case, the ld. A.R. submitted that, the only issue that has been challenged by assessee before this Tribunal in this appeal pertains to disallowance of employees contribution to ESI & PF u/s 36(1)(va) of the Act. Sri Panati Vinaykumar, Bengaluru Page 3 of 6 3. Facts of the case are that the assessee is an individual carrying on the business of municipal solid waste management. The assessee has secured the contract from the BBMP for management of municipal solid waste. The assessee has maintained regular books of accounts that are also subject to audit u/s 44AB of the Act. For the year under appeal, the assessee filed his return of income on 24.10.2019 declaring taxable income of Rs.49,77,940/-. Along with the return of income, the assessee had also filed the report of a Chartered Accountant u/s 44AB of the Act.in Form 3CA & 3CD dated 24.10.2019. After filing the return of income for the year under appeal, the assessee had received a communication by email of the proposed adjustment u/s 143(1)(a) of the Act, from the CPC on 4.2.2020, proposing a “disallowance of expenditure indicated in the audit report but not taken into account in computing the total income to the return u/s 143(1)(a)(iv) of Rs.35,90,774/- stating that the return filed contained errors/incorrect claims/inconsistences.
The ld. A.R. submitted that the assessee did not regularly check his mails and hence the communication received from the CPC dated 4.2.2020 went unnoticed. The assessee thus could not file any response to the proposed adjustment u/s 143(1)(a) of the Act. In as much as the assessee did not reply to the above communication, the intimation u/s 143(1) of the Act dated 15.5.2020 was issued by the CPC making a disallowance of Rs.35,90,774/- as proposed. Thus, in the intimation u/s 143(1) of the Act dated 15.5.2020, the total income of assessee was determined at Rs.85,68,711/- as against the returned income of Rs.49,77,940/-.
4.1 She further submitted that the sole variation made in the intimation u/s 143(1) of the Act dated 15.5.2020 relates to the disallowance of Rs.35,90,774/- made in respect of the belated payments by the assessee of the employees’ contribution to PF&ESI. Sri Panati Vinaykumar, Bengaluru Page 4 of 6 The disallowance was made based on the information furnished by the CA in Form 3 CD, Clause 2(b) wherein the belated payments made by the assessee in respect of employees contribution to welfare funds u/s 36(1)(va) of the Act was set out.
4.2 She submitted that the aforesaid disallowance cannot be made since these payments have been made before the due date for filing the return of income u/s 139(1) of the Act, for the year under appeal. In this regard, she placed reliance on the decision of Hon’ble High Court of Karnataka in the case of M/s. Essae Teraoka Pvt. Ltd. reported in 366 ITR 408 (Kar.) wherein the court has taken the view that the belated remittance of employees’ contribution to PF/ESI would also not be taxable having regard to the provisions of section 43B of the Act, provided that the same has been paid before the due date of filing return u/s 139(1) of the Act. Hence, she submitted that the aforesaid disallowance of Rs.35,90,774/- is not called for and therefore, prayed that the order of the NFAC is against principles and is liable to be quashed.
The ld DR submitted that the issue was squarely covered by the judgement of Hon’ble Supreme Court rendered in the case of Checkmate Services Pvt. Ltd. Vs. CIT-1 in Civil Appeal No.2833/2016 vide its judgement dated 12.10.2022, wherein their Lordship held against the assessee and confirmed the order of the lower authorities on this issue.
We have heard the rival submissions and perused the materials available on record. The issue on merit is with regard to disallowance of Rs.35,90,774/- which relate to payment of ESI & PF paid after the due date prescribed in the respective Act. Admittedly, this issue came for consideration before Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd. Vs. CIT cited (supra) wherein it was decided that the issue on allowability/treatment of ‘delayed’ Sri Panati Vinaykumar, Bengaluru Page 5 of 6 Employee PF Contribution payment in hands of assessee under provisions of Income Tax Act and held that Section 36(1)(va) and Section 43B(b) operate on totally different equilibriums and have different parameters for due dates, i.e., employee's contribution is linked to payment before the due dates specified in the respective Acts and employer's contribution is linked to the payment before the prescribed due date for filing of return u/s. 139(1) of the Act. The result of any failure to pay within the prescribed dates also leads to different results. In the case of employee's contribution, any failure to pay within the prescribed due date under the respective PF Act or Scheme will result in negating employer's claim for deduction permanently forever u/s.36(1)(va) of the Act. On the other hand, delay in payment of employer's contribution is visited with deferment of deduction on payment basis u/s.43B of the Act and is therefore not lost totally. Therefore, as per the above decision, the disallowance made by the Revenue authorities, was fully justified. 6.1 Further, we make it clear that Article 141 of the Constitution of India provides that the law declared by Hon’ble Supreme Court shall be binding on all courts within the territory of India. The law laid down by Supreme Court operates retrospectively and is deemed to the law as it has always been unless, the Supreme Court, says that its ruling will only operate prospectively. 6.2 Hence, in our opinion, this is the land of law on this issue and to be applied to the facts of the present case. Accordingly, in applying the ratio laid down by Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd. cited (supra) to be applied for delay in payment of employees’ contribution of ESI & PF to the Government account beyond the date prescribed in respective Act and to be disallowed, we do not find any infirmity in the order of the lower authorities on this issue and the same is confirmed. In view of the above, we dismiss the appeal of the assessee.
In the result, the appeal filed by the assessee is dismissed.
Order pronounced in the open court on 27th Mar, 2024