ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-1, NAGPUR vs. SMS LTD, NAGPUR

This appeal by the Revenue against the order dated 15-12-2021 passed by the National Faceless Appeal Centre (“NFAC”), Delhi for assessment year 2019-20.

The only issue is to be decided is as to whether the CIT(A), NFAC, Delhi justified in confirming the addition made by the CPC u/s. 36(1)(va) of the Act.

Heard both the parties and perused the material available on record. We note that the assessee is a company engaged in the business of mining contractors. The assessee filed return of income on 28-11-2019. The CPC, Bangalore disallowed an amount of Rs.3,82,91,940/- for not depositing the employee’s contribution of PF/ESI before prescribed due dates under the respective Act. The assessee filed rectification application u/s. 154 of the Act and the CPC dismissed the same confirming the disallowance made in the intimation u/s. 143(1) of the Act. Having aggrieved, the assessee preferred an appeal before the CIT(A). The assessee contended that the assessee is entitled to claim deduction if the employee’s contribution is paid before due dates of filing return of income. The assessee also placed reliance on the order of ITAT, Kolkata Benches in the case of DCIT Vs. Bengal Chemicals and Pharmaceuticals Ltd. reported in (2011) taxmann.com 26 in support of its contention. The CIT(A) considering the same held that the assessee is entitled to claim deduction if the employee’s contribution is paid before due date of filing of return of income u/s. 139(1) of the Act which is evident from para 5.2 to 5.5 of the impugned order. Not satisfied with the said view of CIT(A), the Revenue is before us.

The ld. DR placed on record the decision of Hon’ble Supreme Court in batch of the appeals, lead case being Checkmate Services P. Ltd. in Civil Appeal No. 2833 of 2016 and submitted that the assessee is not entitled to claim deduction if the employee’s contribution is not paid within due dates of respective statutes. On careful reading of the said decision of Hon’ble Supreme Court which held that Section 2(24)(x) deems amount received from the employees as income and the amounts retained by the employer from out of the employee’s income by way of deduction etc. were treated as income in the hands of the employer (assessee). Further, it held 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 of respective statutes, the assessee is not entitled to claim benefit of deduction from the total income. Therefore, in our opinion, essential condition for claiming such deduction if such amounts are deposited on or before due date of respective statutes. It is evident from the record that the assessee deposited the employee’s contribution to PF/ESI after the prescribed due date of relevant Act which is not disputed by the ld. AR. Therefore, following the decision of Hon’ble Supreme Court in the case of Checkmate Services P. Ltd. (supra), the order of CIT(A), NFAC, Delhi is set aside, as the assessee is not entitled to claim deduction for its failure to deposit employee’s contribution before due date prescribed under the relevant statutes. Thus, the ground raised by the Revenue is allowed.

In the result, the appeal of Revenue is allowed.