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2023 (4) TMI 364 - AT - Income TaxDisallowance of employee contribution of PF and ESI - distinction between employer's contribution which is its primary liability under law in terms of Section 36(1)(iv) and its liability to deposit amounts received by it or deducted by it from its employees' in terms of Sec. 36(1)(va) - HELD THAT - As there is a marked distinction between the nature and character of the two contributions - the employer's liability is to be paid out of its income whereas the second is deemed to be an income, by definition, since it is the deduction from the employees' income and held in trust by the employer. This marked distinction has to be borne while interpreting the obligation of every assessee under Section 43B. If the same is not deposited as per mandate of Sec. 36(1)(va), the deduction of the same would not be available to the assessee. Thus, this issue stands in favor of revenue and we respectfully follow the same. Respectfully following the recent decision of Checkmate Services P. Ltd. 2022 (10) TMI 617 - SUPREME COURT and considering our findings and adjudication in preceding paragraphs, the impugned disallowances stand confirmed. Appeal of the assessee is dismissed.
Issues Involved:
1. Disallowance of employee contribution towards Provident Fund (PF) and Employee State Insurance (ESI) due to late deposit. Issue-Wise Detailed Analysis: 1. Disallowance of Employee Contribution of PF and ESI: The primary issue in this case is the disallowance of Rs. 254,004/- as employee contribution towards PF and ESI due to late deposit. The assessee, a company, filed its return of income for the assessment year 2019-20 on 30.10.2019, declaring a total income of Rs. 2,81,35,200/-. However, the ADIT CPC, Bangalore, made an addition of Rs. 2,54,004/- to the total income due to the late deposit of employees' contributions towards PF and ESI, which was reflected in a rectification order under Section 154 of the Income Tax Act. The assessee appealed to the CIT(A) against this order, arguing that all contributions were paid before the due date of filing the income tax return. However, the CIT(A) confirmed the disallowance, stating that the amendments in Section 36(1)(va) clarified that the due date for depositing employee contributions was the date prescribed under the respective Acts (EPF/ESI Acts), and not the due date for filing the income tax return. The CIT(A) cited the retrospective nature of these amendments, asserting that they clarified the existing law rather than introducing new provisions. The assessee further appealed to the ITAT, reiterating that the contributions were made before the due date of filing the return and citing various judicial precedents, including decisions from the Rajasthan High Court and the Supreme Court, which supported the claim that contributions made before the filing of the return should be allowed as deductions. However, the ITAT referred to the recent Supreme Court decision in Checkmate Services P. Ltd. vs. CIT (Civil Appeal No. 2833 of 2016 dated 12.10.2022), which clarified that there is a clear distinction between the employer's contribution (Section 36(1)(iv)) and the employee's contribution (Section 36(1)(va)). The Supreme Court held that employee contributions, being part of the employees' income and held in trust by the employer, must be deposited on or before the due date specified in the respective Acts to qualify for a deduction. The Court emphasized that the non-obstante clause in Section 43B does not override the employer's obligation to deposit employee contributions by the due date. The ITAT concluded that the Supreme Court's decision in Checkmate Services P. Ltd. must be followed, and the disallowance of Rs. 2,54,004/- was confirmed. The ITAT held that the legal position has always required employee contributions to be deposited by the due date specified in the respective Acts, and any delay would result in the disallowance of the deduction. Conclusion: The appeal of the assessee was dismissed, and the disallowance of Rs. 2,54,004/- was upheld based on the Supreme Court's ruling in Checkmate Services P. Ltd. vs. CIT, which clarified the distinction between employer and employee contributions and the requirement for timely deposit of employee contributions.
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