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2020 (2) TMI 792 - HC - Income TaxLate payment of employee s contribution towards PF ESIC - additions by invoking provisions of Section 36(1)(va) read with Section 2(24)(x) - HELD THAT - Section 38 of the Employees Provident Funds and Miscellaneous Provisions Act 1952 makes it obligatory for the employer before paying him his wages to deduct the employee s contribution along with the employer s own contribution as fixed by Government. The employer is further obliged to pay the same within fifteen days of the close of every month pay i.e. such contribution and administrative charges. The reference to fifteen days of the close of the month must be in relation to month during which the payment of wages is to be made and corresponding liability to deduct employee s contribution to the fund arises. This Court held that the expression within fifteen days of the close of every month therefore must be interpreted as having reference to the close of the month for which the wages are required to be paid with corresponding duty to deduct employee s contribution and to deposit the same in the fund. Finding recorded by the Tribunal that if such wages are paid for the following month the liability to deposit the employee s contribution to the fund gets deferred by another month is not the correct statement of law. -Decided in favour of the Revenue and against the assessee.
Issues Involved:
1. Whether the Appellate Tribunal erred in setting aside the appeal to the Assessing Officer regarding the addition made due to late payment of employees' contributions towards PF, ESIC, etc. Detailed Analysis: Issue 1: Addition due to Late Payment of Employees' Contributions to PF, ESIC - The Revenue appealed against the Income Tax Appellate Tribunal's (ITAT) order, which set aside the addition of ?15,20,519 made by the Assessing Officer (AO) due to late payment of employees' contributions towards Provident Fund (PF) and Employees State Insurance Corporation (ESIC). - The AO made the additions invoking Section 36(1)(va) read with Section 2(24)(x) of the Income Tax Act, 1961, as the contributions were not deposited within the prescribed period. - The assessee's appeal to the Commissioner of Income Tax (Appeals) [CIT(A)] was dismissed, affirming that the contributions were not deposited within the prescribed time. However, the ITAT quashed the CIT(A)'s order, relying on the decision in CIT vs. Gujarat State Road Transport Corporation (2014) 41 taxmann.com 100 (Guj), which held that employees' contributions deposited beyond the due date prescribed under Section 36(1)(va) are not eligible for deduction, even if deposited before the due date of filing the tax return. - The ITAT directed the AO to determine whether there was any delay in making such payments, emphasizing that any delayed deposit of PF/ESIC is to be disallowed per the Gujarat High Court's judgment. Tribunal's Findings: - The ITAT noted that the jurisdictional High Court's judgment in CIT vs. Gujarat State Road Transport Corporation is binding and stated that delayed deposits of employees' contributions to PF are not deductible in computing income under Section 28 of the Act. - The Tribunal also referred to a coordinate bench decision in Rajratna Metal Industries Ltd vs. ACIT, which considered the relevant date for PF/ESIC contributions as the month of actual payment of wages/salaries, not the month of salary. High Court's Consideration: - The High Court referenced its decision in M/s Checkmate Facility and Electronic Solutions Pvt Ltd vs. Deputy Commissioner of Income Tax Circle 1, where it was held that Section 38 of the Employees Provident Funds and Miscellaneous Provisions Act, 1952, requires employers to deduct employees' contributions and deposit them within fifteen days of the close of the month for which wages are paid. - The High Court clarified that the expression "within fifteen days of the close of every month" refers to the month for which wages are paid, not the month of payment, rejecting the argument that the liability to deposit contributions gets deferred by another month if wages are paid in the following month. Conclusion: - The High Court concluded that the Tribunal's finding that the liability to deposit employees' contributions gets deferred by another month if wages are paid in the following month is incorrect. - The appeal by the Revenue was allowed, quashing the Tribunal's order and affirming that the substantial question of law is answered in favor of the Revenue and against the assessee.
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