2023 (3) TMI 1366 - AT - Income Tax

Delayed employees contribution to PF/ESIC - Disallowance u/s 36(1)(va) in the order passed u/s 143(1) - HELD THAT - While processing the return of income that was filed u/s 139 or section 142(1) of the Act and computing the total income or loss the adjustment need not be confined to the disallowance of expenditure or increase in income indicated in the audit report but not taken into account in the total income under clause (iv) but law permits such adjustment could also be in respect of an incorrect claim which is apparent from the information in the return under clause (ii). With the law declared in the case of Checkmate Services Pvt. Ltd. 2022 (10) TMI 617 - SUPREME COURT any claim for deduction under section 36(1)(va) of the Act wherein the assessee fails to credit the sums received from the employees to which the provisions under section 2(24)(x) of the Act are applicable preferred by the assessee would be patently an incorrect claim and the adjustment in that respect at the stage of 143(1) of the Act process is perfectly justified. There is nothing illegality or irregularity in making the disallowance u/s 36(1)(va) in the order passed under section 143(1) and therefore CIT(A) rightly upheld the same. Decided against assessee.

Summary

Issues involved:
The appeal concerns the disallowance of employees' contribution to PF/ESIC under section 36(1)(va) of the Income Tax Act, 1961 for the assessment year 2018-19.

Summary:

Issue 1 - Disallowance of employees' contribution to PF/ESIC:
The assessee, engaged in providing security services, filed an original return of income for the assessment year 2018-19, declaring total income. The Assessing Officer proposed an addition of employees' contribution to provident fund/ESI not credited to employees' accounts on time. The assessee cited judgments requesting the disallowance to be dropped. The Assessing Officer made the adjustment and raised a demand. The CIT(A) dismissed the appeal, relying on a Supreme Court decision. The ITAT heard arguments from both sides, with the AR emphasizing timely crediting to the Government account. The DR supported the CIT(A)'s decision, citing relevant case law. The ITAT referred to previous Tribunal decisions and held that the disallowance was unjustified, directing the deletion of the addition.

Issue 2 - Interpretation of relevant provisions:
The ITAT analyzed the provisions of section 36(1)(va) and the distinction between employer's contribution and employees' contribution to PF/ESIC. The ITAT referred to a Supreme Court decision emphasizing the obligation to deposit such amounts on time for deduction. The ITAT clarified that the law under section 36(1)(va) would have retrospective effect, as declared by the Supreme Court. The ITAT also discussed the processing of returns under section 143 of the Act, highlighting the scope for adjustments based on incorrect claims apparent from the return. In light of the Supreme Court ruling, the ITAT deemed the disallowance justified and upheld the CIT(A)'s decision, dismissing the appeal.

In conclusion, the ITAT upheld the disallowance of employees' contribution to PF/ESIC under section 36(1)(va) for the assessment year 2018-19, based on the interpretation of relevant provisions and the Supreme Court ruling, affirming the decision of the CIT(A).