2023 (8) TMI 1605 - AT - Income Tax

Disallowing Provident Fund/ESIC contributions u/s 36(1)(va) - HELD THAT - Addition sustained towards belated deposits of employees contribution to PF/ESIC in the light of the judgment rendered in Checkmate Pvt. Ltd. 2022 (10) TMI 617 - SUPREME COURT Methodology of calculation of default under the relevant PF/ESIC Act - 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. Appeals of the assessee are allowed for statistical purpose.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal issue in this case revolves around the disallowance of the employee's contribution to Provident Fund (PF) and Employees' State Insurance Corporation (ESIC) under Section 36(i)(va) read with Section 43B of the Income Tax Act, 1961. Specifically, the questions considered include:

• Whether the belated payment of employees' contributions to PF/ESIC, if made before the due date under Section 139(1), qualifies for deduction under Section 36(i)(va).
• Whether the Central Processing Centre (CPC) was correct in making additions to the returned income of the assessee due to the late deposit of these contributions.
• How the interpretation of the due date for such contributions affects the taxability under the Act.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Deductibility of Belated Employee Contributions to PF/ESIC

Relevant Legal Framework and Precedents:

The primary legal provisions involved are Section 36(i)(va) and Section 43B of the Income Tax Act, 1961. The precedents considered include the Delhi High Court's decision in Pr. CIT vs. Pro Interactive Service (India) Pvt. Ltd. and the Supreme Court's ruling in Checkmate Services (P.) Ltd. vs. CIT.

Court's Interpretation and Reasoning:

The Tribunal noted that the issue of taxability of belated employee contributions is settled by the Supreme Court's judgment in Checkmate Services. The court emphasized that contributions paid after the due date specified in the respective Acts are taxable under Section 2(24)(x) and not deductible under Section 36(i)(va).

Key Evidence and Findings:

The Tribunal considered the audit report indicating delayed deposits and the CPC's adjustments under Section 143(1). It acknowledged the assessee's argument that payments were made before the due date under Section 139(1).

Application of Law to Facts:

The Tribunal applied the Supreme Court's interpretation, concluding that belated payments do not qualify for deductions under Section 36(i)(va) even if made before the due date under Section 139(1).

Treatment of Competing Arguments:

The assessee's argument, supported by the Delhi High Court precedent, was weighed against the Supreme Court's ruling. The Tribunal favored the latter, citing its binding nature.

Conclusions:

The Tribunal found no merit in the assessee's appeal based on first principles and existing legal interpretations.

Issue 2: CPC's Adjustments and the Role of Audit Reports

Relevant Legal Framework and Precedents:

The Tribunal referenced the Pune Bench's decision in Cemetile Industries vs. ITO, which supported adjustments under Section 143(1) based on audit reports.

Court's Interpretation and Reasoning:

The Tribunal agreed with the Pune Bench that audit report indications are sufficient for adjustments under Section 143(1).

Key Evidence and Findings:

The audit report's indication of delayed deposits was deemed adequate for CPC's adjustments.

Application of Law to Facts:

The Tribunal upheld the CPC's adjustments, aligning with the precedent set by the Pune Bench.

Treatment of Competing Arguments:

The Tribunal did not find substantial counterarguments from the assessee to challenge the audit report's sufficiency.

Conclusions:

The Tribunal supported the CPC's adjustments, reinforcing the audit report's role in such determinations.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning:

"The issue towards taxability of belated employees' contribution to Provident Fund/ESIC is no longer res integra in the light of the judgment of the Hon'ble Supreme Court in the case of Checkmate Services (P.) Ltd. vs. CIT."

Core Principles Established:

• Belated contributions to PF/ESIC are taxable under Section 2(24)(x) and not deductible under Section 36(i)(va), as per Supreme Court's ruling.
• Audit reports indicating delayed deposits justify CPC's adjustments under Section 143(1).

Final Determinations on Each Issue:

• The appeal of the assessee was dismissed on the grounds that belated payments do not qualify for deductions.
• The issue was remanded to the Assessing Officer for factual verification and fresh determination in line with the Tribunal's observations.