2022 (3) TMI 523 - AT - Income Tax

Late payment of employee s contribution of PF and ES I - HELD THAT - As decided in case of PCIT vs Pro Interactive Service (India) Pvt. Ltd 2018 (9) TMI 2009 - DELHI HIGH COURT in view of the judgement of the Division Bench of Delhi High Court in Commissioner of Income Tax versus AIMIL Limited 2009 (12) TMI 38 - DELHI HIGH COURT legislative intent was/is to ensure that the amount paid is allowed as an expenditure only when payment is actually made. We do not think that the legislative intent and objective is to treat belated payment of Employee s Provident Fund (EPD) and Employee s State Insurance Scheme (ESI) as deemed income of the employer under section 2(23)(x) - Decided in favour of assessee.

Summary

Issues Involved:
Appeal against addition of late deposits of ESI and EPF under section 36(va) - Disallowance of expenditure due to delay in deposit of employee's contribution - Interpretation of legislative intent regarding late payments - Applicability of section 43B over section 36(va) in case of late deposits - Absence of the appellant during the hearing.

Analysis:

1. Late Deposits of ESI and EPF under Section 36(va):
The appeal raised concerns about the addition of late deposits of ESI and EPF under section 36(va) by the Assessing Officer. The appellant contended that the provisions of section 36(va) were incorrectly invoked for making the addition. The Honorable CIT(A)-NFAC upheld the addition, leading to the appeal before the Tribunal. The Tribunal, after considering the arguments, referred to a judgment of the Hon'ble Jurisdictional High Court of Delhi in a similar case. The Tribunal concurred with the High Court's decision, emphasizing that the legislative intent was to allow expenditure only when the payment was actually made. Consequently, the Tribunal directed the Assessing Officer to delete the disallowance, thereby allowing the grounds raised by the assessee.

2. Interpretation of Legislative Intent and Late Payments:
The Tribunal's decision was based on the interpretation of the legislative intent regarding late payments of Employee's Provident Fund (EPF) and Employee's State Insurance Scheme (ESI). The Tribunal highlighted that the legislative objective was not to deem belated payments of EPF and ESI as the employer's deemed income under section 2(23)(x) of the Income Tax Act. By aligning with the High Court's judgment, the Tribunal emphasized the importance of actual payment for allowing expenditure, rather than penalizing employers for delayed deposits of employee contributions.

3. Applicability of Section 43B vs. Section 36(va) for Late Deposits:
The appellant argued that section 43B should apply instead of section 36(va) for late deposits of ESI and EPF, as under the PF Act, employer contributions include employee contributions. However, the Honorable CIT(A)-NFAC confirmed the addition under section 36(va). The Tribunal, guided by the High Court's precedent, ruled in favor of the appellant, directing the deletion of the disallowance. This decision clarified the applicability of section 36(va) in cases of late deposits and reinforced the importance of legislative intent in determining tax implications.

4. Absence of the Appellant During Hearing:
Notably, the appellant was absent during the hearing, as confirmed by the returned notice with the remark "address left." Despite the appellant's non-appearance, the Tribunal proceeded with the hearing based on the available records and submissions. This underscores the importance of ensuring proper communication and representation in legal proceedings to effectively present arguments and address issues raised in the appeal.

In conclusion, the Tribunal's judgment in this case addressed the issues related to late deposits of ESI and EPF, clarified the legislative intent regarding delayed payments, and emphasized the significance of aligning tax treatment with the actual payment of contributions. The decision highlighted the need for adherence to legal procedures and effective representation during hearings to ensure a fair and thorough consideration of the appeal.