2022 (11) TMI 1327 - AT - Income Tax

Delayed payment of employee s contribution to ESI and PF - Payment made by the assessee beyond the due date by invoking the provisions of section 36(1)(va) - Assessment u/s 143(1) - HELD THAT - It is not disputed that as per the decision of CHECKMATE SERVICES PVT LTD 2022 (10) TMI 617 - SUPREME COURT decided the issue on allowability/treatment of delayed Employee PF Contribution payment in hands of assessee under provisions of Income Tax Act and held that Section 36(1)(va) and Section 43B(b) operate on totally different equilibriums and have different parameters for due dates, i.e., employee's contribution is linked to payment before the due dates specified in the respective Acts and employer's contribution is linked to payment before the due dates specified in the respective Acts and employer's contribution is linked to the payment before the prescribed due date for filing of return u/s. 139(1) - The result of any failure to pay within the prescribed dates also leads to different results. In the case of employee's contribution, any failure to pay within the prescribed due date under the respective PF Act or Scheme will result in negating employer's claim for deduction permanently forever u/s.36(1)(va). On the other hand, delay in payment of employer's contribution is visited with deferment of deduction on payment basis u/s.43B and is therefore not lost totally. Therefore as per the above decision, the disallowance made by the Revenue authorities were fully justified. As clear from Intimation u/s 143(1) the disallowance has been made on the basis of audit report in Form 3CD wherein the fact that employees contribution was paid beyond the date of ESI and PF and hence not allowable as deduction under section 36(1)(va) of the Act has been clearly mentioned. The mere fact that the wordings as there has been no response , in the intimation referred to earlier has not been struck off, it cannot be presumed that the reply of the assessee dated 29.2.2020 has not been considered while issuing the intimation under section 143(1) of the Act. We are of the view that the disallowance under section 143(1)(a) of the Act is valid in view of the decision made by Hon ble Supreme Court in the case of Checkmate services (supra). - Decided against assessee.

Summary

Issues:
1. Disallowance on delayed payment of employee's contribution to ESI and PF under section 36(1)(va) of the Income Tax Act, 1961.
2. Validity of disallowance under section 143(1)(a) of the Act based on the intimation issued.

Analysis:

1. The primary issue in this appeal was whether the Revenue authorities were justified in disallowing a delayed payment of employee's contribution to ESI and PF by the assessee. The decision of the Hon'ble Supreme Court in a relevant case clarified that sections 36(1)(va) and 43B(b) operate on different equilibriums with distinct due dates for employee and employer contributions. Failure to pay employee's contribution within the prescribed due date results in negating employer's claim for deduction permanently. In contrast, delay in employer's contribution leads to deferment of deduction. The Court held that the disallowance by the Revenue authorities was fully justified based on this interpretation.

2. The assessee argued that the disallowance made under section 143(1)(a) of the Act was not valid as per the proviso to the section, which requires adjustments to be made only after due intimation to the assessee. The intimation issued to the assessee mentioned communication sent before making the disallowance, stating that due to no response or an unacceptable response, adjustments were being made. The assessee contended that it was unclear whether their response was considered. However, the details revealed that the assessee had responded to the proposal for disallowance before the intimation was issued. The disallowance was based on the audit report, indicating that the employees' contribution was paid beyond the due date, rendering it non-deductible under section 36(1)(va) of the Act. The Tribunal found the disallowance to be valid, considering the Supreme Court's decision in a similar case, and dismissed the appeal, affirming that the assessee was not entitled to the deduction for the belated payment of ESI and PF contributions.

In conclusion, the Tribunal upheld the disallowance of the delayed payment of employee's contribution to ESI and PF by the Revenue authorities under section 36(1)(va) of the Income Tax Act, 1961. Additionally, the Tribunal found the disallowance made under section 143(1)(a) of the Act to be valid, based on the communication sent to the assessee and the response provided before the issuance of the intimation. The appeal filed by the assessee was dismissed, affirming the decision of the Revenue authorities and the validity of the disallowance.