2022 (12) TMI 1214 - AT - Income Tax

Disallowance of employees contribution to Provident Fund as well as ESIC - HELD THAT - When the money is given by the employees, the employer is holding that money on behalf of the employees in the manner of good faith and trust. They are not part of the employers income, nor are they heads of deduction per se in the form of statutory pay out. In fact, they are others income, money, only deemed to be income with the object of ensuring that they are paid within the due date specified in that particular statute. Therefore, they have to be deposited in terms of such welfare enactment. It is open to deposit in terms of those statutes on or before the due date as mandated by such concerned law that the amount which is otherwise retained and is deemed income in the hands of the employer is therefore, treated as a deduction. Essentially the condition precedent for deduction is that therefore, such amounts which are held in trust for the employees should be deposited by the employer on or before the due date as prescribed under the relevant Statutes. The Hon'ble Supreme Court further held that if this approach and reasoning is adopted then the non-obstante clause u/s 43B or anything contained in that provision would never absolve the assessee-employer from its liability to deposit employees contribution on or before the due date as mentioned in the respective enactments as a condition for deduction. Reverting to the facts of the present case, it is an admitted fact that the payment of employees contribution to the provident fund was made before the due date of filing of return of income u/s 139(1) of the Act but beyond the due date as provided in the respective Statutes. Respectfully following the judgment of Hon'ble Supreme Court 2022 (10) TMI 617 - SUPREME COURT we hold that the assessee-employer was duty bound to deposit the employees contribution to provident fund within the due date as mentioned in the respective Statutes. Since this was not done the assessee is not entitled for deduction u/s 36(1)(va) read with section 43B of the Act and the said amount has to be construed as deemed income of the assessee and added to his total income. We do not find therefore, any infirmity with the findings of the Revenue authorities and the appeal of the assessee is dismissed.

Issues Involved:
1. Disallowance of Rs. 14,83,912/- under the head Profit and Gains from Business and Profession.
2. Applicability of Explanation 2 to Section 36(1)(va) of the Act inserted by Finance Act, 2021 to Assessment Year 2017-18.
3. Condonation of delay in filing the appeal.

Detailed Analysis:

Issue 1: Disallowance of Rs. 14,83,912/- under the head Profit and Gains from Business and Profession

The primary issue in this appeal is the disallowance of employees' contribution to Provident Fund (PF) and Employee State Insurance Contribution (ESIC) amounting to Rs. 14,83,912/-. The appellant contends that although the payments were made after the due date specified under the relevant Acts, they were made before the due date of filing the return of income under Section 139(1) of the Income Tax Act, 1961. The appellant argues that no disallowance is warranted under Section 36(1)(va) read with Section 43B of the Act.

The Tribunal noted that various decisions of the Pune Tribunal have held that if the employees' contribution to provident fund is paid before the due date of filing the return of income, then it is deductible as per provisions of Section 43B of the Act. However, the recent judgment of the Hon'ble Supreme Court in the case of Checkmate Services P. Ltd. Vs. CIT-1 clarified that the non-obstante clause under Section 43B does not override the employer's obligation to deposit the employees' contribution on or before the due date specified in the respective Statutes. The Supreme Court emphasized that the employees' contributions are held in trust by the employer and must be deposited within the due dates mandated by the welfare enactments.

Issue 2: Applicability of Explanation 2 to Section 36(1)(va) of the Act inserted by Finance Act, 2021 to Assessment Year 2017-18

The appellant argued that the explanation to Section 36(1)(va) inserted by the Finance Act, 2021, which clarifies that the due date for depositing employees' contributions is the due date specified under the respective Acts, is applicable prospectively from Assessment Year 2021-22 and not to the Assessment Year 2017-18. However, the Tribunal, relying on the Supreme Court's judgment, held that the employer is duty-bound to deposit the employees' contribution within the due dates specified under the respective Statutes. Since the payment was made beyond the due date as provided in the respective Statutes, the assessee is not entitled to deduction under Section 36(1)(va) read with Section 43B of the Act, and the amount is to be construed as deemed income of the assessee.

Issue 3: Condonation of delay in filing the appeal

The appeal was admittedly time-barred by 27 days. The Tribunal condoned the delay in filing the appeal by virtue of the judgment of the Hon'ble Supreme Court in Cognizance for Extension of Limitation, In re 438 ITR 296 (SC) read with judgments in Cognizance for Extension of Limitation, In re 432 ITR 206 (SC) and 421 ITR 314 (SC), and admitted the appeal for disposal on merits.

Conclusion:

Respectfully following the judgment of the Hon'ble Supreme Court, the Tribunal held that the assessee-employer was duty-bound to deposit the employees' contribution to the provident fund within the due date as mentioned in the respective Statutes. Since this was not done, the assessee is not entitled to deduction under Section 36(1)(va) read with Section 43B of the Act, and the said amount has to be construed as deemed income of the assessee and added to his total income. The appeal of the assessee was dismissed, and the order pronounced in the open Court on 21st November 2022.

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