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Income Tax Appellate Tribunal, DELHI BENCH: ‘SMC’ NEW DELHI
Before: SHRI SAKTIJIT DEY
ORDER This is an appeal by the assessee against order dated 06.02.2023 passed by National Faceless Appeal Centre (NFAC) for the assessment year 2020-21.
The dispute in the present appeal is confined to disallowance of deduction claimed of Rs.21,13,137, being delayed payment of Employees Contribution to Provident Fund (PF) and Employees State Insurance (ESI).
Briefly, the facts are, while processing the return of income filed by the assessee for the impugned assessment year, the Centralized Processing Centre (CPC) noticed that, though, the assessee had not deposited employees contribution to PF/ESI, however, the assessee had claimed deduction of such payment.
Being of the view that the deduction claimed is not allowable under Section 36(1)(va) read with section 2(24)(x) of the Act, the CPC made an adjustment to the income of the assessee by disallowing the deduction claimed. Though, assessee contested the aforesaid disallowance by filing an appeal before the first appellate authority.
However, the first appellate authority upheld the disallowance.
Before us, learned counsel appearing for the assessee submitted that the disallowance cannot be made by way of adjustment under Section 143(1) of the Act as it is not covered under Section 143(1)(a)(iv) of the Act. In this context, he relied upon a decision of the Co-ordinate Bench in case of M/s. P.R. Packaging Services – dated 07.12.2022. He submitted, since, the employees contribution to PF and ESI is not in the nature of expenditure, the auditor has not reported it as disallowable expenditure in the tax audit report.
Without prejudice, he submitted, the deduction is otherwise allowable under Section 37(1) of the Act. For such proposition, he relied upon the decision of Co-ordinate Bench in case of BBG Metal Syndicate Pvt. Ltd. vs DCIT – dated 17.11.2022. Finally, he submitted, the due date for payment of employees contribution to PF and ESI should be calculated with reference to the due date for repayment of salary.
I have considered rival submissions and perused material on record.
In so far as assessee’s claim that deduction on account of payment of employees contribution to PF and ESI has to be allowed in case it is paid before the due date of filing of return, I am unable to accept such contention of the assessee in view of the binding ratio laid down by the Hon'ble Supreme Court in case of Checkmate Services P.
Ltd. – CIT-I [2022] 143 taxmann.com 178 (SC), wherein, it has been held that unless employees contribution to PF and ESI are deposited within the due date prescribed under the relevant statute governing such payments, the amount in question has to be treated as income of the assessee in terms of section 36(1)(va) read with section 2(24)(x) of the Act. Therefore, the disallowance has to be upheld. In so far as the contention of learned counsel for the assessee that such adjustment is not contemplated under Section 143(1)(a) (iv) of the Act, I am unable to accept the contention in view of the decision of the Co-ordinate Bench, in case of Savleen Kour Vs. ITO – dated 09.01.2023.
As regards, the contention of the assessee that the deduction is otherwise allowable under Section 37(1) of the Act, I do not find merit in such submission. In case of BBG Metal Syndicate Pvt. Ltd. Vs. DCIT–(supra), the Co-ordinate Bench while considering such submission has not expressed any opinion and has simply restored the issue to the file of the Assessing Officer. Therefore, the decision cited cannot be regarded to be a precedent for laying down the ratio that the payment made can be allowed as deduction under Section 37(1) of the Act. In so far as, learned counsel’s contention that the due date should be calculated with reference to the due date for payment of salary, I direct the Assessing Officer to factually verify the date of payment of employees contribution to PF and ESI and in case they are found to have been paid within the due date prescribed under the PF and ESI Act or within the grace period, if any, under these Acts, then, deduction can be allowed
In the result, the appeal is allowed for statistical purposes.
Order pronounced in the open court on 26th April, 2023.