2023 (6) TMI 1412 - AT - Income Tax

Delayed employee contributions towards PF/ESI - HELD THAT - Section 36(1)(va) clearly stipulates the conditions for allowing deduction and clearly stipulates that the deduction in respect to income as defined under section 2(24)(x) shall be allowed provided the said employee contribution is deposited by employer with the relevant fund governing PF/ESI within the time prescribed under relevant statute governing PF/ESI. Thus, this contention of the assessee is rejected that deemed income u/s 2(24)(x) cannot be brought to tax under Chapter IVD. We have also observed that this issue of delayed deposit of employee contribution towards PF/ESI beyond the time prescribed under the relevant statute governing PF/ESI is no more res integra as Hon'ble Supreme Court has already decided the issue in favour of Revenue in the case of Checkmate Services Pvt. Ltd. 2022 (10) TMI 617 - SUPREME COURT where in Hon ble Supreme Court has strictly construed the provisions of Section 36(1)(va) and has held that in case employee contribution of PF/ESI deducted by employer is deposited late beyond the time prescribed under the relevant statute governing PF/ESI, no deduction shall be allowed keeping in view provisions of Section 36(1)(va) of the 1961 Act. It will be relevant at this point of time to refer to decision of ITAT, Chennai Bench, in the case of M/s Electrical India 2022 (11) TMI 1363 - ITAT CHENNAI wherein this issue is decided in favour of Revenue. Thus, this appeal filed by the assessee lacks merit and stand dismissed. We order accordingly.

Summary

Issues:
1. Interpretation of income under Section 2(24)(x) of the Income Tax Act and its classification under Section 28.
2. Equivalence of the term "Recovery" with "deduction or receipt" in EPF and ESI Acts.
3. Impact of non-abstante clause in EPF Scheme on the term "Shall" to "may."
4. Application of EPF Act and ESI Act provisions regarding interest and penalty for defaults.
5. Employer's responsibility for contributions under EPF Scheme and ESI Act.
6. Legality of the order in question.

Analysis:
1. The appeal raised the issue of whether income defined under Section 2(24)(x) falls under Section 28 of the IT Act. The assessee argued that the income should be taxed under "Income from other sources" rather than "Profits and gains from business or profession." The Tribunal rejected this argument, citing the deeming fiction created by Section 2(24)(x) and upheld the addition made for delayed deposit of EPF/ESI contributions.

2. The term "Recovery" in EPF and ESI Acts was debated, with the assessee contending it should not be equated with "deduction or receipt." However, the Tribunal upheld the addition made for delayed deposits, emphasizing the employer's responsibility to deposit contributions within the prescribed time.

3. The impact of the non-abstante clause in the EPF Scheme modifying "Shall" to "may" was discussed. The Tribunal considered this aspect but ultimately dismissed the appeal, emphasizing the strict interpretation of Section 36(1)(va) regarding timely deposits of EPF/ESI contributions.

4. The Tribunal examined the provisions of the EPF Act and ESI Act regarding interest and penalty for defaults. Despite the argument of double jeopardy, the Tribunal upheld the addition made for delayed deposits, emphasizing compliance with statutory timelines.

5. The issue of the employer's responsibility for contributions under the EPF Scheme and ESI Act was raised. The Tribunal acknowledged this responsibility but upheld the addition for delayed deposits, citing the strict interpretation of Section 36(1)(va) and relevant case law.

6. The overall legality of the order was challenged by the assessee. However, the Tribunal found no merit in the appeal and dismissed it, relying on the deeming fiction under Section 2(24)(x) and the strict interpretation of Section 36(1)(va) regarding timely deposits of EPF/ESI contributions.

This comprehensive analysis highlights the key legal arguments, interpretations, and decisions made in the judgment, addressing each issue raised in the appeal.