HI-TECH INSTRUMENTS & SYSTEMS ,VISAKHAPATNAM vs. INCOME TAX OFFICER, WARD-4(1), VISAKHAPATNAM

PER SHRI DUVVURU RL REDDY, JUDICIAL MEMBER

2 2. The assessee has raised the following grounds of appeal:

“1. On the facts and in the circumstances of the case the order of the Ld. CIT(A) erroneous in law and facts of the case.

2. On the facts and in the circumstances of the case the Ld. CIT(A) ought to have appreciated that the provisions of section 2(24)(x) r.w.s 36(1)(va) and section 43B of the Act being late deposit of employees contribution towards ESIC/PF amounting to Rs. 2,92,250/- which has been duly deposited on or before the due date of filing of return of income as per the provisions u/s. 139(1) OF THE Act. Employee contribution towards ESI and PF paid after the due date of the respective statute but before filing of income tax return due date u/s. 139(1) is allowed u/s. 43B and should not be disallowed u/s. 36(1)(va) of the Act.

3 5,69,080/- by making an addition of Rs. 2,92,252/- which includes employee’s contribution to PF & ESI amounting to Rs. 2,43,809/- and Rs. 48,443/- respectively. This addition resulted decrease in income tax refund of Rs. 91,187/-. It is the contention case of the Revenue that the employee’s contribution to PF & ESI was paid after the due date specified under the respective Act. Aggrieved by the decision of the Ld. AO in making addition of Rs. 2,92,252/- on account of belated payments of employees share contribution towards PF & ESI, the assessee filed an appeal before the Ld. CIT(A)-NFAC. On appeal, the Ld. CIT(A)-NFAC, dismissed the appeal of the assessee by relying on the decision of the Hon’ble Apex Court in the case of Checkmate Services Private Limited vs. CIT (Civil Appeal No. 2833 of 2016, dated 12/10/2022). Aggrieved by the decision of the Ld. CIT(A)- NFAC, the assessee is in appeal before the Tribunal by raising the above mentioned grounds of appeal.

3. At the outset, the Ld. AR submitted that the Ld. CIT (A) has erred in confirming the addition made by the Ld. AO towards belated payment of employees’ contribution of PF & ESI in the respective fund accounts though they were remitted in the Government Treasury within the due date of filing the income tax return. On this issue, the Ld.AR

4 reiterated the submissions made before the Ld. CIT(A)-NFAC and pleaded for deletion of the addition made by the Ld. AO and confirmed by the Ld. CIT(A)-NFAC.

4. On the other hand, the Ld. DR relied on the latest judgment of Hon’ble Supreme Court in the case of Checkmate Services Private Limited (supra) and submitted that the lower authorities have rightly disallowed the payments made belatedly as per the respective Acts. He further submitted that the Employees Contribution to PF / ESI is allowed as deduction, if the same is deposited on or before the due date specified under the provisions of the respective Acts. He further submitted that since the assessee has not deposited the employees contribution to the respective fund account on the date as prescribed in Explanation to section 36(1)(va) of the Act, the disallowance made by the Ld. AO was just, proper and reasonable, therefore, submitted that the Ld.CIT(A)- NFAC rightly confirmed the disallowance made by the AO, hence the addition is to be sustained.

“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 6 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.

Pronounced in the open Court on the 28th February, 2023.