2023 (7) TMI 1539 - AT - Income Tax

Disallowance of expenditure towards employees contribution to ESIC/PF u/s 36(1)(va) - Timing of Salary Disbursement and Due Date Determination - HELD THAT - The issue towards taxability of belated employees contribution to PF/ESIC is no longer res integra in the light of the judgment of Hon ble Supreme Court in the case of Checkmate Services 2022 (10) TMI 617 - SUPREME COURT thus no merit in the case of the assessee for impermissibility of such adjustment u/s 143(1) of the Act. Determination of due date - Month during which the disbursement of salary is actually made would be relevant for the purposes of determination of due date of deposit under the respective statute. The accrual of liability towards payment of salary without actual disbursement would not fasten obligation for deposits of employees contribution in the labour Acts per se. as observed by the co-ordinate bench in Kanoi Paper and Industries Ltd. 2001 (5) TMI 139 - ITAT CALCUTTA-E - This aspect has not been found to be examined by the AO or CIT(A). Hence without expressing any opinion on merits on this aspect, we deem it expedient to restore the matter to the file of designated AO. It shall be open to the assessee to place factual matrix before the AO and take such plea for evaluation of the AO. The AO shall examine this aspect and fresh order in accordance with law after giving proper opportunity. AO shall thus recompute the amount of disallowance u/s 36(i)(va) if any, on the above basis, in accordance with law. Assessee shall be entitled to appropriate relevant u/s 36(i)(va) where it is found that deposits have been made towards PF/ESIC within the due date from the close of month of actual disbursement of salary/wages - Appeal of the assessee is allowed ex-parte for statistical purposes.

2025 (1) TMI 757 - AT

1. ISSUES PRESENTED and CONSIDERED

The primary legal issue in this appeal is the disallowance of expenditure towards employees' contributions to the Employees' State Insurance Corporation (ESIC) and Provident Fund (PF) under Section 36(1)(va) of the Income Tax Act, 1961, for the Assessment Year 2019-20. The core questions include:

Whether the belated deposit of employees' contributions to PF/ESIC can be added to the taxable income under Section 2(24)(X) read with Section 43B of the Act.
Whether the adjustment/disallowance of such contributions is permissible under Section 143(1) of the Act.
Whether the timing of salary disbursement affects the determination of the due date for depositing employees' contributions under the relevant labor laws.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Taxability of Belated Employees' Contributions

Relevant Legal Framework and Precedents: The Income Tax Act differentiates between employees' and employer's contributions to PF/ESIC. Section 43B applies to employer contributions, while Section 36(1)(va) governs employees' contributions. The Supreme Court in Checkmate Services Pvt. Ltd. vs. CIT clarified that Section 43B(b) does not cover employees' contributions deducted by employers.
Court's Interpretation and Reasoning: The Tribunal noted that the issue is settled by the Supreme Court's judgment in Checkmate Services, which establishes that belated deposits of employees' contributions are taxable income under Section 2(24)(X) and not deductible under Section 36(1)(va).
Key Evidence and Findings: The delayed deposits were indicated in the audit report, supporting the Revenue's position for adjustment under Section 143(1).
Application of Law to Facts: The Tribunal found no merit in the assessee's argument against the adjustment under Section 143(1), aligning with the Supreme Court's interpretation.
Treatment of Competing Arguments: The Tribunal dismissed the assessee's contention, citing established legal principles from higher judicial authorities.
Conclusions: The Tribunal upheld the Revenue's position that belated deposits are taxable and not deductible.

Issue 2: Permissibility of Adjustments Under Section 143(1)

Relevant Legal Framework and Precedents: Section 143(1) allows for adjustments based on discrepancies apparent from the return. The Co-ordinate Bench in Weather Comfort Engineers Pvt. Ltd. supported such adjustments.
Court's Interpretation and Reasoning: The Tribunal agreed with the Co-ordinate Bench that adjustments for delayed contributions are permissible under Section 143(1).
Key Evidence and Findings: The audit report's indication of delayed deposits was deemed sufficient for adjustments.
Application of Law to Facts: The Tribunal applied the precedent from Weather Comfort Engineers to affirm the validity of adjustments under Section 143(1).
Treatment of Competing Arguments: The Tribunal found no substantial argument from the assessee to counter the established precedent.
Conclusions: The Tribunal concluded that the adjustments were valid under Section 143(1).

Issue 3: Timing of Salary Disbursement and Due Date Determination

Relevant Legal Framework and Precedents: The Tribunal referred to Sentinel Consultants Pvt. Ltd. and Kanoi Paper and Industries Ltd., which discuss the relevance of the salary disbursement month for determining the due date for deposits.
Court's Interpretation and Reasoning: The Tribunal recognized that the timing of salary disbursement could affect the due date and remanded the issue for factual verification.
Key Evidence and Findings: The Tribunal noted that this aspect was not examined by the Assessing Officer or CIT(A).
Application of Law to Facts: The Tribunal remanded the issue to the Assessing Officer for further examination, allowing the assessee to present relevant facts.
Treatment of Competing Arguments: The Tribunal did not express an opinion on the merits but provided an opportunity for further evaluation.
Conclusions: The Tribunal restored the issue to the Assessing Officer for fresh determination.

3. SIGNIFICANT HOLDINGS

Verbatim Quotes of Crucial Legal Reasoning: "The Hon'ble Supreme Court in this case observed that Income Tax Act differentiates between the employees' contribution and employer contribution to the PF/ESIC Act while in respect employer's contribution, Section 43B is applicable but however with respect of employees' contribution the conditions specified in Section 36(1)(va) is applicable and Section 43B(b) does not cover employees' contribution deducted by employer from salary of the employees."
Core Principles Established: The distinction between employees' and employer's contributions is crucial, with specific sections governing their tax treatment. Adjustments for delayed deposits are permissible under Section 143(1).
Final Determinations on Each Issue: The Tribunal upheld the disallowance of deductions for belated deposits, affirmed the validity of adjustments under Section 143(1), and remanded the issue of due date determination based on salary disbursement timing for further examination.

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