2023 (8) TMI 1490 - AT - Income Tax

Rectification of mistake - Deposits of Employees Contribution to Provident Fund and Employees State Insurance Corporation after lapse of time - ITAT allowed assessee appeal - HELD THAT - As in the case of Checkmate Services Private Ltd 2022 (10) TMI 617 - SUPREME COURT the Hon ble Supreme Court has held that where an assessee failed to deposit Employees' Contribution towards Provident Fund and Employees State Insurance within due date prescribed in respective statutes, deduction under Section 36(1)(va) of the Act was not allowable. The non-obstante clause contained in Section 43B of the Act would not apply in the case of employees contribution deducted from the salary of employees and held in trust by assessee-employer. Therefore, such assessee/employer would not be absolve from the liability to deposit employees contribution on or before the due date specified in the respective statutes as a pre-condition for claiming deduction under Section 36(1)(va). Also in the case of Saurashtra Kutch Stock Exchange Ltd 2008 (9) TMI 11 - SUPREME COURT the law laid down in the case of Checkmate Services Private Ltd. (supra) shall apply retrospectively. The consequence of such retrospective application would be that the disclosure made by the tax auditor in audit report in Form 3CD about the Details of contributions received from employees for various funds as referred to in section 36(1)(va) would now become indicative of a disallowance as the mere fact that Employees Contribution to ESI/PF has been deposited after the expiry of due date as specified in the applicable statute would trigger disallowance under Section 36(1)(va) read with Section 2(24)(x) . The view taken by the Tribunal 2022 (7) TMI 1528 - ITAT MUMBAI being contrary to view taken by the Hon ble Supreme Court in the case of Checkmate Services Private Ltd. (supra) constitutes a mistake apparent on record. Accordingly, we allow the rectification application preferred by the Revenue. Accordingly, order is recalled for adjudication of Ground No. 1(a) to 1(c) raised in the appeal.

Summary

Issues:
Rectification of order passed by the Tribunal in ITA No. 2075/Mum/2021 regarding the addition made by the Assessing Officer on account deposits of Employees' Contribution to Provident Fund and Employees' State Insurance Corporation after the lapse of the prescribed time.

Analysis:

Issue 1: Rectification of Tribunal's Order
The present Miscellaneous Application was filed by the Revenue seeking rectification of the order dated 28/07/2022 passed by the Tribunal in ITA No. 2075/Mum/2021 for the Assessment Year 2018-19. The order allowed Ground No. 1(a) to 1(c) raised in the appeal by the Assessee, where the addition made by the Assessing Officer on account deposits of Employees' Contribution to Provident Fund and Employees' State Insurance Corporation was deleted. The Tribunal concluded that the deposits, although delayed, were made before the due date of filing the return specified under Section 139(1) of the Act.

Issue 2: Impact of Supreme Court Judgment
A subsequent judgment by the Hon'ble Supreme Court in the case of Checkmate Services Private Ltd. v. CIT has significant implications. The Supreme Court held that the deduction under Section 36(1)(va) of the Act was not allowable if the assessee failed to deposit Employees' Contribution towards Provident Fund and Employees' State Insurance within the due date prescribed in the statutes. The non-obstante clause in Section 43B of the Act would not apply in such cases. The Supreme Court's decision in this case applies retrospectively, affecting the interpretation of Section 36(1)(va) and triggering disallowance under Section 2(24)(x) of the Act for delayed deposits.

Issue 3: Validity of Rectification
The Tribunal found that the view taken in its previous order was contrary to the Supreme Court's ruling in the Checkmate Services Private Ltd. case. Citing precedents such as Assistant Commissioner of Income Tax, Rajkot Vs. Saurashtra Kutch Stock Exchange Ltd., the Tribunal concluded that a subsequent Supreme Court decision could validly form the basis for rectification under Section 254 of the Act. Therefore, the rectification application by the Revenue was allowed, and the order dated 28/07/2022 was recalled for further adjudication.

In conclusion, the Tribunal allowed the rectification application by the Revenue based on the subsequent Supreme Court judgment, which altered the interpretation of the law regarding the deduction of Employees' Contribution towards Provident Fund and Employees' State Insurance. The case highlights the importance of staying updated with legal developments and the retrospective application of significant judicial decisions in tax matters.