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2021 (3) TMI 810 - AT - Income TaxAddition of salary and wages expenses - HELD THAT - CIT(A) herself has accepted that there is increase in profit during the year as compared to preceding year and also the Assessing Officer has not pointed out any specific instance of the defect. She also taken note of the decisions cited by the authorized representative of the assessee. When no specific defect in bills or voucher has been pointed of by the Assessing Officer no addition on adhoc basis can be sustained in view of the decisions above.Accordingly we delete the addition which was sustained by the Learned CIT(A). The ground No. 1 of the appeal of the assessee is accordingly allowed. Disallowance for late payment of employees contribution to ESI and PF - HELD THAT - As per the provisions of the Act if employees contribution is paid to the respective department after due date as specified in respective enactment the employer shall not be allowed deduction under the head profit and gains of the business . There is a distinction between employer and employee contribution to ESI/EPF. If contribution of the employee is deducted out of his salary and not paid to the respective department it is the employer who enjoys the funds of the employee for his benefit in the business and the employee is deprived of interest accrued on said contribution. The employer hold the payment as a trustee till the due date of deposit provided in respect of enactment. The respective enactment has although provided deterrent to the employer in the form of interest and penalty after late payment however the employee will be still deprived of the interest if the contribution is paid after the due date of deposit. In view of provision of section 36(1)(iv) Act the employer is discouraged to make deposit of employees contribution to ESI/EPF after the due date prescribed in respective enactment. Thus respectfully following the decision of Bharat Hotels Ltd 2018 (9) TMI 798 - DELHI HIGH COURT the finding of the Ld. CIT(A) on the issue in dispute is upheld. The ground No. 2 of the appeal of the assessee is accordingly dismissed.
Issues Involved:
1. Partly sustaining the addition of ?5,00,000 out of ?10,00,000 made by the AO on an ad-hoc basis. 2. Disallowance of ?6,12,210/- for late payment of employees' contribution to PF and ESI. Detailed Analysis: Issue 1: Partly Sustaining the Addition of ?5,00,000 on an Ad-hoc Basis Facts: The assessee, engaged in the business of manpower supply, claimed expenses of ?29,17,36,148/- on account of wages and salary in the profit and loss account. The Assessing Officer (AO) made an ad-hoc addition of ?10 lakh due to unverifiable wages and salary expenses, noting that most payments were in cash and not fully vouched. The Ld. CIT(A) restricted this disallowance to ?5 lakh, referencing similar past additions. Arguments: - Assessee's Counsel: Argued that both the AO and Ld. CIT(A) made ad-hoc disallowances without pointing out specific discrepancies or absence of bills/vouchers. Cited decisions from the Hon’ble Delhi High Court in Friends Clearing Agency Private Limited Vs CIT and the Tribunal in Ganapathi Enterprises Ltd., asserting that ad-hoc disallowances without specific evidence are unsustainable. - Departmental Representative (DR): Relied on the orders of the lower authorities. Judgment: The Tribunal found that the AO did not point out any specific defects in the bills or vouchers. The Ld. CIT(A) acknowledged an increase in profit compared to the preceding year and noted that no specific instance of defect was highlighted by the AO. Citing the Delhi High Court's decision in Friends Clearing Agency (P) Ltd. and the Tribunal’s decision in Ganpati Enterprises Ltd., the Tribunal concluded that ad-hoc disallowances without specific evidence cannot be sustained. Thus, the addition of ?5 lakh was deleted, and the ground of the appeal was allowed. Issue 2: Disallowance of ?6,12,210/- for Late Payment of Employees' Contribution to PF and ESI Facts: The AO disallowed ?6,12,210/- towards Employees’ State Insurance (ESI) and Employees’ Provident Fund (EPF) contributions, which were deposited after the due date under respective enactments. The Ld. CIT(A) upheld this disallowance, relying on the Gujarat High Court’s decision in CIT Vs Gujarat State Road Transport Corporation. Arguments: - Assessee's Counsel: Argued that the Delhi High Court in PCIT-7 Vs. Pro Interactive Service (India) P. Ltd. held that contributions made before the due date of filing the return of income are allowable, referencing the decision in CIT Vs AIMIL Ltd. & Ors. - Departmental Representative (DR): Cited the Delhi High Court’s decision in Commissioner of Income-tax Vs. Bharat Hotels Ltd., which held that employees’ contributions should be allowed only if paid within the due date stipulated in respective enactments. Judgment: The Tribunal noted the distinction between employer and employee contributions to ESI/EPF. The employer’s contribution is governed by section 43B(b) of the Act, while the employee’s contribution, treated as income under section 2(24)(x), is governed by section 36(1)(iv). The Tribunal upheld the Ld. CIT(A)’s finding, following the Delhi High Court’s decision in Bharat Hotels Ltd., which emphasized that employees’ contributions must be deposited within the stipulated period to be deductible. Consequently, the ground of the appeal was dismissed. Conclusion: The appeal was partly allowed. The Tribunal deleted the ad-hoc addition of ?5 lakh sustained by the Ld. CIT(A) but upheld the disallowance of ?6,12,210/- for late payment of employees' contribution to PF and ESI. The judgment was pronounced in the open court on 2nd March 2021.
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