2023 (6) TMI 1465 - AT - Income Tax

Disallowance on account of delay in depositing employees contribution to provident fund (PF) and Employees State Insurance (ESI) - assessee has claimed deduction of expenses on account of payment of employees contribution to PF and ESI, such amounts were not deposited within the due date as specified in PF and ESI Acts. HELD THAT - After the decision of Checkmate Services P. Ltd. 2022 (10) TMI 617 - SUPREME COURT the disputed issue is no more res integra, as the Hon ble Supreme Court has clearly and categorically held that in case employees contribution to PF and ESI have not been deposited within the due date prescribed under the PF and ESI Acts, the same cannot be allowed as deduction in view of the provisions contained u/s 36(1)(va) of the Act. In such circumstances, the employees contribution to PF and ESI not deposited within the due date, shall be treated as income of the assessee u/s. 2(24)(x) - we are unable to accept assessee s contention that the disallowance cannot be the subject matter of adjustment u/s. 143(1) of the Act. Alternative contention of the assessee that the employees contribution to PF and ESI have been deposited within the due date keeping in view the fact that the months to be considered should be the month, in which, salary/wages are disbursed - We direct the AO to examine the claim of the assessee strictly with reference to the provisions contained under the PF and ESI Acts in respect of the mode and manner of depositing the employees contribution towards PF ESI - Appeal is partly allowed for statistical purposes.

2023 (11) TMI 1337 - AT

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

Whether the disallowance of Rs. 2,65,53,841/- for the delay in depositing employees' contributions to the Provident Fund (PF) and Employees State Insurance (ESI) is justified under the applicable laws.
Whether such disallowance can be made through adjustments under Section 143(1) of the Income Tax Act.
Whether the due date for depositing employees' contributions should be considered based on the month in which salary or wages are disbursed.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Justification of Disallowance for Delay in Depositing PF and ESI Contributions

Relevant Legal Framework and Precedents: The relevant legal provisions include Section 36(1)(va) and Section 2(24)(x) of the Income Tax Act, along with the due dates prescribed under the PF and ESI Acts. The Supreme Court decision in Checkmate Services P. Ltd. vs. CIT is a pivotal precedent.
Court's Interpretation and Reasoning: The court relied on the Supreme Court's decision, which clarified that if employees' contributions to PF and ESI are not deposited within the statutory due dates, they cannot be allowed as deductions. Such contributions are considered income of the assessee under Section 2(24)(x).
Key Evidence and Findings: The court found that the assessee failed to deposit the contributions within the due dates as specified in the respective Acts.
Application of Law to Facts: The court applied the Supreme Court's interpretation, concluding that the disallowance was justified under the provisions of the Income Tax Act.
Treatment of Competing Arguments: The assessee argued that the disallowance was unjustified as there was no delay when considering the month of salary disbursement. However, the court was not persuaded by this argument due to the Supreme Court's clear guidance.
Conclusions: The court upheld the disallowance, aligning with the Supreme Court's decision.

Issue 2: Disallowance via Adjustment under Section 143(1)

Relevant Legal Framework and Precedents: Section 143(1) of the Income Tax Act allows for adjustments during the processing of returns.
Court's Interpretation and Reasoning: The court determined that the disallowance could indeed be made through adjustments under Section 143(1), as the Supreme Court's decision left no ambiguity regarding the treatment of delayed contributions.
Key Evidence and Findings: The court found that the Central Processing Centre (CPC) correctly disallowed the deduction based on the return processing.
Application of Law to Facts: The court applied the statutory provisions and Supreme Court precedent, affirming the CPC's actions.
Treatment of Competing Arguments: The assessee's argument against the adjustment under Section 143(1) was dismissed, as the court found the adjustment appropriate under the circumstances.
Conclusions: The court confirmed that the adjustment under Section 143(1) was valid.

Issue 3: Consideration of Salary Disbursement Month for Due Date Calculation

Relevant Legal Framework and Precedents: The PF and ESI Acts specify due dates for contributions, which are typically linked to the month of salary disbursement.
Court's Interpretation and Reasoning: The court directed the Assessing Officer to examine the assessee's claim regarding the due dates based on salary disbursement months, in accordance with the PF and ESI Acts.
Key Evidence and Findings: The court acknowledged the assessee's contention but required further examination by the Assessing Officer.
Application of Law to Facts: The court did not make a final determination on this issue but instructed further investigation.
Treatment of Competing Arguments: The court allowed the possibility of the assessee's argument being valid, pending further examination.
Conclusions: The court remanded this issue for further factual determination by the Assessing Officer.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "The Hon'ble Supreme Court has clearly and categorically held that in case employees' contribution to PF and ESI have not been deposited within the due date prescribed under the PF and ESI Acts, the same cannot be allowed as deduction."
Core Principles Established: The court reinforced the principle that statutory due dates for PF and ESI contributions are binding, and non-compliance results in disallowance of deductions.
Final Determinations on Each Issue: The court upheld the disallowance and adjustment under Section 143(1) but remanded the issue of due date calculation based on salary disbursement for further examination.

← Previous Next →