DCIT, CENTRAL CIRCLE -15 , NEW DELHI vs. B.L.KASHYAP & SONS LTD, NEW DELHI

The grounds of revenue are as follows:- 1. Whether on the facts and circumstances of the case, the Ld. CIT(A) is correct on facts and in law in deleting the addition of Rs. 2,63,96,393/- on account of employees' contribution to PF & ESI even when the same was deposited by the employer after the due date as specified in respective Statutes.

The grounds raised

Replying to the above, the learned CIT(DR) supported the orders of the authorities below and submitted that Assessing Officer CPC is validly entitled to make disallowance on the issue therefore cross objection of the assessee may kindly be dismissed. Placing reliance on the recent judgment of Hon’ble Supreme Court in the case of Checkmate Pvt. Ltd. vs. CIT (2022) 143 taxmann.com 178 (SC) the learned CIT(DR) submitted that the issue is squarely covered against the assessee therefore grounds of revenue may kindly be allowed reversing the first appellate order and restoring that of the Assessing Officer.

Placing rejoinder to the above, the ld. AR supported the cross objection of assessee and submitted that in view of recent order of ITAT Delhi Bench in the case of Sentinel Consultants P. Ltd. in & 8/Del/2023 order dated 12.06.2023, the matter may kindly be restored to the file of Assessing Officer for afresh determination in accordance with law allowing the assessee to place factual matrix of the issue before the Assessing Officer and all relevant arguments in support of its claim.

From the cross objections and submissions of ld. AR we note that the ld. AR for the assessee submits at the outset that such adjustments/ disallowances for alleged delay in deposit of employees contribution to PF/ESIC is not permissible while drawing intimation under S. 143(1) of the Act having regard to several tribunal decisions. The ld. AR also submitted that alternatively the claim of assessee is allowable u/s. 37(1) of the Act and he has relied on certain orders of coordinate benches of Tribunal to support this plea. 8 The ld. AR further submits that the assessee, in the instant case, has shown business income from the business of building construction and allied services and interest income under the head income from other sources. Therefore, in the backdrop of nature of work, the ld. AR contends that the salary in such business is often disbursed to the employees as and when the funds are arranged from the clients. Owing to belated receipt of service charges from clients, the disbursement of salary are also, at times, paid late in tandem. The ‘due date’ for deposit of employees’ contribution under the respective Acts should therefore be reckoned with reference to the month of actual salary payment and not when the liability to pay arises to an employer. It was further contended that when the due date under PF/ESIC Act is computed with reference to the month in which the salary has been actually paid, the alleged delay in payment of ESIC/PF would be substantially ironed out. The ld. counsel states that the Revenue has computed the delay with reference to the month in which the liability to pay salary has arisen to the employer rather than the month in which such salary has been actually paid resulting in alleged delay giving rise to impugned disallowance.

On the other hand, the ld. CIT(DR) supporting appeal of revenue has placed reliance on the order u/s. 143(1) of the Act and recent judgment of Hon’ble Supreme Court in the case of Checkmate (supra).

We notice at the outset that an opportunity was given via electronic platform of the deptt. for the proposed adjustments and in the absence of e-response, the adjustments were carried out the CPC Bengluru and intimation was issued enhancing the assessed income in the captioned assessment years. The CIT(A) in the first appeal has sustained the adjustments towards belated deposits of employees’ contribution to PF/ESIC in the light of the judgment rendered by the Hon’ble Supreme Court in Checkmate Pvt. Ltd. vs. CIT, (2022) 143 taxmann.com 178 (SC). The contention of the Assessee that such additions cannot be made under the umbrella of S. 143(1) is covered against the assessee the decision of the co-ordinate bench in the case of Weather Comfort Engineers Private Limited vs. ACIT-CPC order dated 15/02/2023. The action of CPC and CIT(A) thus cannot be faulted where some opportunity was admittedly given for eresponse.

First of all, we proceed to adjudicate the alternate plea on behalf of the assessee for grant of deduction under general provisions for deduction of expenditure under S. 37 of the Act. We do not see any merit in such plea that the belated deposit of employees contributions to PF/ESIC governed under Section 36(1)(va) is also simultaneously amenable to deduction under Section 37(1) of the Act. In terms of the provision, Section 37(1) permits deduction of expenditure which is not in the nature of expenditure prescribed in Sections 30 to 36 of the Act and also not being in the nature of capital expenditure or personal expenses of the assessee. Thus, in view of such mandate of law, the deduction of expenditure under the general clause of Section 37(1) would not extend to expenditure specially covered within the ambit of Section 36(1)(va) of the Act. The Hon’ble Supreme Court in the case of Checkmate Pvt. Ltd. (supra) itself explains this position in Para 32 of the Judgment. Such view also draws support from the observations made in recent judgment of the Hon’ble Supreme Court in the case of Pr.CIT vs. Khyati Realtors (P) Ltd. (2022) 141 taxmann.com 461 (SC). The alternate plea is thus without any merit.

Now we left with the main contention of ld. AR towards methodology of calculation of default under the relevant PF/ESIC Act. The Ld. Counsel contends that the month during which the disbursement of salary is actually made would be relevant for the purposes of determination of due date of deposit under the respective statute. The accrual of liability towards payment of salary without actual disbursement would not fasten obligation for deposits of employees contribution in the labour Acts per se. as observed by the co-ordinate bench in Kanoi Paper and Industries Ltd. vs. ACIT (2002) 75 TTJ 448 (Cal). This aspect has not been found to be examined by the Assessing Officer or CIT(A). Hence without expressing any opinion on merits on this aspect, we deem it expedient to restore the matter to the file of designated AO. It shall be open to the assessee to place factual matrix before the AO and take such plea for evaluation of the AO. The AO shall examine this aspect and fresh order in accordance with law after giving proper opportunity. Consequently, grounds of revenue as well as cross objection of assessee requires re-examination and afresh adjudication by the Assessing Officer enabling him to consider the issue afresh.

Therefore in view of foregoing discussion and observations the intimations u/s. 143(1) of the Act for AY 2019-20 is set aside and the issue of allowability of employees contribution to ESIC & PF is restored to the file of Assessing Officer for a fresh adjudication after allowing due opportunity of hearing to the assessee by considering the explanation and factual matrix of the issue and factual contentions of assessee, without being influence with the earlier intimation and first appellate order.

In the result, the appeal of the revenue and cross objection of assessee are allowed for statistical purposes.