2024 (5) TMI 1452 - AT - Income Tax

Delayed Employees' contribution to PF and ESI - amount not deposited within the due date prescribed under the PF and ESI Acts in terms of Explanation-1 to section 36(1)(va) - HELD THAT - The issue involved in the present appeal is with respect to addition made under Section 36(1)(va) of the Act on account of delay in deposit of employees contribution to PF and ESI, for the impugned year under consideration which has now been settled / clarified in the case of Checkmate Services (P.) Ltd. 2022 (10) TMI 617 - SUPREME COURT Accordingly, we see no reason why the issue be kept pending and litigation be prolonged on this issue any further. Decided against assessee.

Summary

Issues Involved:
1. Procedural lapses in issuing intimation under Section 143(1) without following mandatory procedures.
2. Sustaining the addition under Section 36(1)(va) for delayed deposit of employees' contribution to PF and ESI.
3. Treatment of employees' contribution to PF and ESI as 'Deemed Income' and its subsequent allowance as business expenditure under Section 37.
4. Double taxation of Rs. 20,39,969/- as income under both "business or profession" and "income from other sources."

Detailed Analysis:

1. Procedural Lapses in Issuing Intimation:
The Assessee contended that the intimation dated 24/12/2019 issued under Section 143(1) by Dy. CIT, CPC, Bangalore, was flawed due to procedural lapses. Specifically, the Assessee argued that no intimation or show cause notice was issued before making adjustments, violating Proviso 1 to Section 143(1). Additionally, the adjustments were made without a judicious order or communication of reasons, thus breaching Proviso 2 to Section 143(1). The Tribunal noted these procedural arguments but did not provide a detailed ruling on this issue, focusing instead on the substantive issues regarding the additions made under Section 36(1)(va).

2. Sustaining the Addition under Section 36(1)(va):
The primary issue in the appeal was the addition of Rs. 4,20,77,998/- made under Section 36(1)(va) due to the delayed deposit of employees' contribution to PF and ESI. The Tribunal observed that this issue has been settled by the Supreme Court in the case of Checkmate Services (P.) Ltd. [2022] 143 taxmann.com 178 (SC). The Supreme Court held that for assessment years prior to AY 2021-22, the non obstante clause under Section 43B could not apply to amounts held in trust, such as employees' contributions, which must be deposited on or before the due date specified in the relevant Acts to qualify for deduction. The Tribunal, following this precedent, dismissed the Assessee's appeal, affirming the addition made by the AO.

3. Treatment of Employees' Contribution as 'Deemed Income':
The Assessee argued that employees' contributions to PF and ESI, treated as 'Deemed Income' under Section 2(24)(x), should be allowed as business expenditure under Section 37 if deposited later with interest and penalty. The Tribunal rejected this argument, citing the Supreme Court's clarification that such contributions, being held in trust, must be deposited by the due date to qualify for deduction under Section 36(1)(va). The Tribunal emphasized that the non obstante clause under Section 43B does not absolve the employer from this obligation.

4. Double Taxation of Rs. 20,39,969/-:
The Assessee claimed that Rs. 20,39,969/- was taxed twice, once under "business or profession" and again under "income from other sources." The Tribunal did not provide a detailed analysis or ruling on this specific issue in the judgment, focusing instead on the broader issue of the disallowance under Section 36(1)(va).

Conclusion:
The Tribunal dismissed the Assessee's appeal, upholding the addition made under Section 36(1)(va) for delayed deposit of employees' contributions to PF and ESI. The Tribunal relied heavily on the Supreme Court's decision in Checkmate Services (P.) Ltd., which clarified that such contributions must be deposited by the due date to qualify for deduction. The Tribunal did not provide detailed rulings on the procedural lapses or the double taxation issue raised by the Assessee.