KAVITHA SUVVARI,SRIKAKULAM vs. INCOME TAX OFFICER, WARD-1, SRIKAKULAM

PER Duvvuru RL Reddy, Judicial Member :

This appeal is filed by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [CIT(A)-NFAC] in DIN & Order No. ITBA/NFAC/S/250/2023-24/1053517660(1), dated 2/6/2023

2 arising out of the order passed U/s. 143(3) of the Income Tax Act,

1961 [the Act] for the AY 2018-19.

e-filed her return of income declaring total income of Rs.

48,30,880/-. Initially, the return was processed U/s. 143(1)(a) of

the Act accepting the declared income of the assessee.

Accordingly, notice U/s. 143(2) of the Act was issued and duly

served upon the assessee. Subsequently, notice U/s. 142(1) of

the Act was also issued to the assessee on 31/01/2020 seeking

details with reference to the return of income. As per the

information available in ITR filed by the assessee for the AY

2018-19, the Ld. AO observed that the expenses incurred in

respect of Recognized Provident Fund in the P & L Account

amounted to Rs.1,94,76,114/- which exceeded the statutory limit

of 27% of salary, as laid down in Rule 87 of the Income Tax

Rules, 1962. The excess expenditure in respect of contribution

to Recognized Provident Fund is Rs. 53,82,870/- [Rs. 1,94,76,114

– Rs. 1,40,93,444] which is excess of 27% of salary expenses

incurred to the tune of Rs. 5,21,97,939/-. The Ld. AO asked the

assessee to furnish the details in this regard vide notices U/s.

142(1) of the Act dated 31/1/2020, 19/3/2020 & 3/11/2020. In

3 reply dated 3/2/2021, the assessee admitted that she had

incurred the expenditure of Rs. 1,94,76,114/- as EPF

contribution in the year under consideration. Before the Ld. AO

the assessee contested that since the expenditure was actually

incurred by the assessee, the same should be allowed. However,

the Ld. AO rejected the assessee’s contention on the ground that

as per Rule 87 of the Income Tax Rules, 1962, the ordinary

annual contribution by the employer to a fund in respect of any

particular employee shall not exceed 27% of his/her salary for

each year as reduced by the employer’s contribution to any

Provident Fund in respect of such employee for that year. The Ld.

AO therefore observed that since the assessee has violated Rule

87 of IT Rules, 1962 by way of depositing an excess of Rs.

53,82,670/- to a Recognized Provident Fund by exceeding the

statutory limit of 27% of total salary expenses. Accordingly, the

Ld. AO issued a show cause notice dated 10/02/2021 to explain

as to why the excess claim of Rs. 53,82,670/- should not be

disallowed and added back to the assessee’s total income as per

Rule 87 of the IT Rules, 1962. In the absence any explanation

from the assessee, the Ld. AO disallowed the excess claim of Rs.

53,82,670/- and made addition. Thus, the Ld. AO computed the

assessed income at Rs. 1,02,13,550/- and passed the assessment

order U/s. 143(3) r.w.s 143(3A) & 143(3B) of the Act, dated

18/02/2021. Aggrieved by the order of the Ld. AO, the assessee

carried the matter in appeal before the Ld. CIT(A)-NFAC.

submissions of the assessee and discussed the issue at length

and held that “……the addition of Rs. 53,82,670/- made by the

Ld. AO for not depositing of employees contribution to the PF

covered under section 36(1)(va) r.w.s 2(24)(x) of the Act but paid to

the respective funds after the due dates as specified by Rules of

the relevant funds are collected held as deemed income and

therefore the disallowance is hereby confirmed…..”. Aggrieved

by the decision of the Ld. CIT (A), the assessee is in further

appeal before the Tribunal by raising the following grounds:

“1. The order of the Ld. CIT(A) was arbitrary and quite injustice. 2. The Ld. CIT(A) ought to have considered the fact that the addition made has been considered U/s. 43B of the Act instead of where we claimed expenditure U/s. 37 of the Act. This may kindly be considered. The same may be considered as per the provisions of section 37 of the Act. 3. The Ld. CIT (a) ought to have considered the fact that in the following cases same expenditure is considered U/s. 37 of the Act. The cases are: (i) The CIT vs. Premier Cotton Spg. Mills Ltd., excess gratuity contribution was allowed U/s. 37, whereas U/s. 36(1)(v), the same was not allowable. (ii) In the case of CIT vs. Rayalaseema Passenger and Goods Transport Ltd it was again held that gratuity

5 in excess of prescribed limited U/s. 36 are allowable U/s. 37. (iii) In the case of Triplicane Permanent Fund Ltd vs. CIT (Madras High Court), it was held that gratuity in excess of 8 and 1/3% is allowable U/s. 37. 4. The ITAT ought to have considered the fact that the entire PF collected from the employees has been paid by the appellant, thereby, there is no loss to the ex-cure. The same may kindly be deleted. 5. Any other ground(s) that may be urged at the time of hearing before the Hon’ble ITAT.”

on behalf of the assessee to represent the case. Before us, the Ld.

DR strongly relied on the orders of the Ld. AO as well as the Ld.

CIT(A)-NFAC and supported the decision taken by the Ld.

Revenue Authorities. Though none appeared on behalf of the

assessee to represent the case, considering the settled nature of

the issues, we proceed to adjudicate the appeal based on the

material available on record.

available on record as well as the orders of the Ld. Revenue

Authorities. Undisputed facts are that during the FY 2018-19, as

per the P & L Account the assessee paid a total salary of Rs.

5,21,97,939/- and claimed Rs. 1,94,76,114/- as expenses under

the head Employee Provident Fund. Since the amount of

expenditure incurred exceeded the statutory limit of 27% of

6 salary to the extent of Rs. 53,82,670/- [Rs. 1,94,76,114 – Rs.

1,40,93,444], as per the Ld. AO it is in violation of Rule 87 of the

IT Rules, 1962 and therefore the addition of Rs. 53,82,670/- was

made by the Ld. AO. On appeal, the Ld. CIT(A)-NFAC dismissed

the grounds raised by the assessee against addition made by the

Ld. AO and partly allowed the appeal. On perusal of the material

before us, it is the case of the assessee that since the assessee

has furnished the details of payment of EPF contribution as well

as the details of expenditure actually incurred, the same should

be allowed. It is also the case of the assessee that the entire PF

contribution collected from the employees of the assessee has

been paid by the assessee and therefore, there is no loss to the

exchequer. In these circumstances, it is apparent from records that

the assessee has not deposited the employee contributions of EPF to the

respective fund account before the due date specified under the

provisions of respective Acts. In such situation, Hon’ble Supreme Court

in its judgment in the case of Checkmate Services Private Limited, Civil

Appeal No.2833 of 2016 dated 2nd October 2022, held that delayed

payment of employee contributions of PF / ESI are no longer available for

deduction u/s 43B and should suffer disallowance u/s 36(1)(va). For the

7 sake of clarity and convenience, relevant part of the order of the Hon’ble Supreme Court is extracted as under :

“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 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.

8 this court does not find any reason to interfere with the impugned judgment. The appeals are accordingly dismissed.”

Court (supra), we are of the considered view that the Ld. CIT(A)-NFAC

has rightly held at para-7 of his order by observing as under:

“7. Under these circumstances and following the clarificatory amendments made by the Finance Act, 2021 to section 36(1)(va) and section 43B, the contentions made in the submissions are not found acceptable and the additions of Rs. 53,82,670/- made by the AO for not depositing of employee’s contribution to the PF covered under section 36(1)(va) r.w.s 2(24)(x) of “the Act” but paid to the respective funds after the due dates as specified by rules of the relevant funds are correctly held as deemed income and therefore the disallowance is hereby confirmed as the said late payments are not covered under 43B of the Act. Accordingly, the ground raised by the appellant in this regard is dismissed following the decisions of the Hon’ble Supreme Court in the case of Checkmate Services vs. CIT-1 (supra) dated 12/10/2022.”

passed by the Ld.CIT(A)-NFAC and accordingly, dismiss the grounds of

appeal of the assessee.

Pronounced in the open Court on 30th August, 2023.

Sd/- Sd/- (एस बालाकृ�णन) (दु�वू� आर.एल रे�डी) (S.BALAKRISHNAN) (DUVVURU RL REDDY) लेखा सद�य/ACCOUNTANT MEMBER �या�यकसद�य/JUDICIAL MEMBER Dated :30.08.2023 OKK - SPS

आदेश क� ��त�ल�प अ�े�षत/Copy of the order forwarded to:- �नधा�रती/ The Assessee – Kavitha Suvvari, 3-3-40, Paramkusam 1. Nagar Colony, Ilisipuram Near MDO Office, Srikakulam-532001, Andhra Pradesh. राज�व/The Revenue – Income Tax Officer, Ward-1, Palakonda Road, 2. Srikakulam, Andhra Pradesh-532001. 3. The Principal Commissioner of Income Tax, आयकर आयु�त (अपील)/ The Commissioner of Income Tax 4. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, �वशाखापटणम/ DR, ITAT, 5. Visakhapatnam गाड� फ़ाईल / Guard file 6. आदेशानुसार / BY ORDER

Sr. Private Secretary ITAT, Visakhapatnam