2022 (12) TMI 354 - AT - Income Tax

Disallowance u/s.36(1)(va) - Intimations issued u/s.143(1) - amount received by the assessee from employees as contribution to the Employees Provident Fund (EPF)/Employees State Insurance Corporation (ESIC) etc. was not credited to the employees accounts on or before the due date as prescribed under the respective Acts - AR referred to section 5 of the Payment of Wages Act, 1936, to contend that deduction made from an employee s salary for the month of October should suffer disallowance only if it is not paid by 15th December - HELD THAT - There is no merit in the contention of linking the date of deposit of the employees share in the relevant funds with the date of payment of wages. Section 5 of the Payment of Wages Act simply deals with the Time of payment of wages . It does not stipulate any time limit for deposit of the employees share in the relevant funds. For that purpose, the relevant Acts give a window for depositing the contribution within 15 days of the last month's salary. Thus, contribution to the relevant fund towards the salary for the month of October-ending should be deposited before 15th November. CIT(A) was justified in sustaining the adjustment u/s 143(1)(a) by means of disallowance made in these cases for late deposit of employees share to the relevant funds beyond the date prescribed under the respective Acts. Both the sides are agreeable that the facts and circumstances of all the appeals except the two, which will be taken up hereinafter, are similar. We, ergo, countenance the disallowance. The first case which involves some different facts is IT Cube Solutions Pvt. Ltd.- AR submitted that the information in audit report in point 20(b) was wrongly given pertaining to preceding year. He pointed out this fact from the audit report for the financial year 2016-17, which refers to due date of payment as 15-05-2015 and the actual date of payment as 12-05-2016. This shows that inadvertently the auditor recorded due dates for payment as pertaining to the preceding year and actual date of payment for the current year for the purposes of indicating the disallowance of expenditure u/s.36(1)(va). The AO is directed to verify this fact and make the disallowance u/s.36(1)(va), if warranted, as per the correct figures. The second case is Exfo Electro Optical Engineering (I) Pvt. Ltd - AR contended that the auditor inadvertently mentioned the amount of employees share as well as the employer s share in point 20(b) of the audit report. The AO is directed to verify the factual position in this regard and make disallowance only in respect of employees share. Appeal allowed for statistical purposes.

Summary

Issues Involved:
1. Disallowance under Section 36(1)(va) of the Income-tax Act, 1961.
2. Applicability of Section 43B for late deposit of employees' contributions.
3. Adjustment under Section 143(1)(a) of the Act.
4. Incorrect claims and audit report indications.
5. Specific cases with different factual scenarios.

Detailed Analysis:

1. Disallowance under Section 36(1)(va) of the Income-tax Act, 1961:
The primary issue in these appeals was the disallowance under Section 36(1)(va) due to the late deposit of employees' contributions to the Employees Provident Fund (EPF) and Employees State Insurance Corporation (ESIC). The contributions were not credited to the employees' accounts before the due date as prescribed under the respective Acts. The Tribunal emphasized that the deduction under Section 36(1)(va) is only allowable if the employees' share is deposited before the due date stipulated under the respective Acts. The Supreme Court's decision in Checkmate Services P. Ltd. & Ors. VS. CIT & Ors. clarified that the due date under Section 139(1) is irrelevant for this purpose.

2. Applicability of Section 43B for Late Deposit of Employees' Contributions:
The assessee argued that payments made before the due date for filing the return under Section 139(1) should be considered compliant under Section 43B. However, the Tribunal, referencing the Supreme Court's ruling, held that Section 43B does not override the specific requirement of Section 36(1)(va). The deduction for employees' contributions is strictly conditional on timely deposit as per the respective Acts.

3. Adjustment under Section 143(1)(a) of the Act:
The Tribunal examined whether the adjustments made under Section 143(1)(a) were valid. It was argued that adjustments could only be made within the specific clauses of Section 143(1)(a). The Tribunal agreed that adjustments should be strictly within the confines of the provision. However, it found that the disallowance was justified under clause (iv) of Section 143(1)(a), which allows for disallowance of expenditure indicated in the audit report but not accounted for in the return.

4. Incorrect Claims and Audit Report Indications:
The Tribunal analyzed the definition of "incorrect claim apparent from any information in the return" as per Explanation (a) to Section 143(1). It concluded that none of the clauses (i) to (iii) of Explanation (a) applied to the facts of the case. However, it found that the audit report's indication of delayed payment was sufficient to warrant disallowance under clause (iv) of Section 143(1)(a). The audit report indicated the due date and actual date of payment, clearly showing the delay, thus justifying the disallowance.

5. Specific Cases with Different Factual Scenarios:
- IT Cube Solutions Pvt. Ltd. (ITA No.702/PUN/2022): The audit report contained incorrect information pertaining to the preceding year. The Tribunal directed the AO to verify the correct figures and make disallowance if warranted.
- Exfo Electro Optical Engineering (I) Pvt. Ltd. (ITA No.523/PUN/2022): The auditor mistakenly included both employees' and employer's shares in the report. The Tribunal directed the AO to verify and make disallowance only for the employees' share.

Conclusion:
The appeals in ITA No.523/PUN/2022 and ITA No.702/PUN/2022 were allowed for statistical purposes, requiring verification by the AO. All other appeals were dismissed, upholding the disallowance under Section 36(1)(va) due to late deposits beyond the due dates prescribed under the respective Acts. The Tribunal emphasized the importance of strict compliance with statutory deadlines for claiming deductions on employees' contributions.