2022 (11) TMI 69 - AT - Income Tax

Delayed payment of PF and ESI in respect of employees contribution - payments have been made within the grace period of 5 days in some cases and in some cases, there has been delay in payment in respect of salary itself, which consequently affect the payment of PF and ESI - HELD THAT - Admittedly, the Hon'ble Supreme Court in the case of Checkmate Services Pvt. Ltd 2022 (10) TMI 617 - SUPREME COURT has categorically held that the employees contribution to PF and ESI to the extent it is not paid within due date prescribed under the PF Act, is not allowable u/s. 36(1)(va) of the Act. The Hon'ble Supreme Court has also admittedly held that the provisions of section 43B would not apply to the provisions of section 36(1)(va) of the Act in respect of employees contribution. However, as ld. AR submitted that the employees contribution to PF and ESI has been paid in some cases within grace period provided under the respective Act and also in some cases the salary has been paid belatedly, consequently, there was delay in payment of employees contribution to PF and ESI. This issue is restored to the file of the Assessing Officer for reexamination and re-adjudication after granting the assessee adequate opportunity of being heard. Liberty is granted to the ld. AR to make all submissions in respect of allowability of disallowed contribution of the employees to PF and ESI under other relevant provisions in the interest of justice. This direction is being given because ld. AR has submitted that as the amount is not allowable under section 36(1)(va) of the Act and same is also not covered under section 43B of the Act, the amount of delayed contribution to PF and ESI in respect of employees contribution would be treated as income in the hands of the assessee u/s. 2(24)(x) and on subsequent payment of the same, it would be a business expenditure, which can be claimed u/s. 37(1) - We are not expressing any opinion in regard to his arguments as it has not been examined by the lower authorities. Liberty is also granted to the assessee to raise all arguments as are found necessary by him before the lower authorities. Appeal of the assessee stands partly allowed for statistical purposes.

Summary

Issues:
Delayed payment of PF and ESI in respect of employees' contribution.

Analysis:
The appeal was filed against the order of the ld. CIT(A), National Faceless Appeal Centre (NFAC), Delhi, pertaining to the assessment year 2016-17. The issue raised in the appeal was the delayed payment of Provident Fund (PF) and Employee State Insurance (ESI) in relation to employees' contributions. The appellant contended that payments were made within the grace period of 5 days in some instances, while in others, delays occurred due to late salary payments affecting the PF and ESI contributions. The appellant requested the matter to be sent back to the Assessing Officer for verification and re-adjudication.

The respondent argued that the matter was settled by the Hon'ble Supreme Court in the case of Checkmate Services Pvt. Ltd. vs CIT, where it was held that if the employees' contributions to PF and ESI were paid beyond the prescribed time under the PF Act, they would not be allowable under section 43B of the Income Tax Act. The Supreme Court ruled that such contributions not paid within the due date were not allowable under section 36(1)(va) of the Act. The provisions of section 43B were deemed inapplicable to employees' contributions to PF and ESI according to the Supreme Court.

Considering the submissions, the Tribunal acknowledged the Supreme Court's decision and directed the issue to be reexamined by the Assessing Officer. The Tribunal noted that while the Supreme Court's ruling was clear, the appellant's assertion of payments made within the grace period and delays due to late salary payments warranted further review. The appellant was granted the opportunity to present arguments on the allowability of the disallowed contributions under other relevant provisions. The Tribunal refrained from expressing an opinion on the appellant's arguments, as they had not been assessed by the lower authorities. The appellant was also given liberty to raise any necessary arguments before the lower authorities.

Consequently, the appeal was partly allowed for statistical purposes, with the direction to reexamine the issue and provide the appellant with a fair hearing. The order was pronounced in open court on 17/10/2022.