2023 (9) TMI 1650 - AT - Income Tax

Delayed contributions towards PF ESI - remittances are made after the due date under the respective Acts but before the due date of filing the income tax return - HELD THAT - PF ESI contributions in respect of employer are concerned the same are allowable as deduction if they are remitted before due date for filing of return of income. The assessee contends that these contributions were remitted before due date of filing of return of income which fact needs to be verified by the Assessing Officer. Therefore we direct the AO to verify the contentions of the assessee and if these contributions are remitted before due date for filing of return of income the same be allowed as deduction. Employees contributions towards PF ESI - As noticed that similar issue came up for adjudication in the case of Bercos Melody House 2023 (9) TMI 1649 - ITAT DELHI restore this issue to the file of the AO to decide the issue in the light of the observations made by the Tribunal in the case of Kanoi Paper Industries Ltd. 2001 (5) TMI 139 - ITAT CALCUTTA-E as held 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 . This aspect has not been found to be examined by the Assessing Officer or CIT (A). Ground of appeal is allowed for statistical purpose. Levy of interest u/s 234B which is consequential in nature and therefore this is restored to AO. Levy of interest u/s 234A - The contentions of the assessee that interest u/s 234A is not leviable as the assessee filed return on 16.10.2018 before the last date of filing of return as per CBDT Circular u/s 119 of the Act which extended the date to 31.10.2018 shall be verified by the AO. Thus we restored this ground to the AO for verification and adjudication in accordance with law.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

• Whether the disallowance of contributions towards Provident Fund (PF) and Employees' State Insurance (ESI) under Section 43B of the Income Tax Act is justified when remittances are made after the due date under the respective Acts but before the due date of filing the income tax return.
• Whether the employee's contributions to PF and ESI can be allowed as a deduction if deposited after the due date under the respective Acts but before the due date for filing the return of income.
• The applicability of interest levies under Sections 234A and 234B of the Income Tax Act.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Disallowance of PF and ESI Contributions

• Relevant Legal Framework and Precedents: The disallowance was made under Section 43B of the Income Tax Act, which mandates that certain deductions are only allowable if the sum is actually paid by the due date of filing the return. The Tribunal referenced precedents such as the Supreme Court's decision in Checkmate Pvt. Ltd. vs. CIT.
• Court's Interpretation and Reasoning: The Tribunal noted that employer contributions to PF and ESI are allowable if remitted before the due date for filing the return of income. The Tribunal directed the Assessing Officer (AO) to verify if the contributions were indeed remitted before this due date.
• Key Evidence and Findings: The assessee claimed that the contributions were remitted before the due date for filing the return, which needed verification by the AO.
• Application of Law to Facts: The Tribunal applied the provisions of Section 43B and directed the AO to allow the deduction if the contributions were remitted in time.
• Treatment of Competing Arguments: The Tribunal considered the assessee's argument regarding the timing of remittance and the need for verification by the AO.
• Conclusions: The issue was restored to the AO for verification of the remittance dates.

Issue 2: Employee's Contributions to PF and ESI

• Relevant Legal Framework and Precedents: The Tribunal examined Section 36(1)(va) concerning employee contributions, referencing decisions like Bercos Melody House Vs. DCIT and Sentinel Consultants Pvt. Ltd. Vs. ACIT.
• Court's Interpretation and Reasoning: The Tribunal noted the controversy over the disallowance of employee contributions due to late deposits and referenced the Supreme Court's stance in Checkmate Pvt. Ltd.
• Key Evidence and Findings: The Tribunal emphasized the need to determine the correct due date for contributions based on salary disbursement timing.
• Application of Law to Facts: The Tribunal restored the issue to the AO for examination of the timing of salary disbursement and subsequent contribution deposits.
• Treatment of Competing Arguments: The Tribunal acknowledged the assessee's argument about the timing of salary disbursement affecting the due date for contributions.
• Conclusions: The issue was restored to the AO for further examination.

Issue 3: Interest under Sections 234A and 234B

• Relevant Legal Framework and Precedents: Sections 234A and 234B pertain to interest levies for late filing and payment of advance tax, respectively.
• Court's Interpretation and Reasoning: The Tribunal restored the issue to the AO for verification, particularly regarding the extension of the return filing deadline by the CBDT.
• Key Evidence and Findings: The assessee claimed the return was filed within the extended deadline, which needed verification.
• Application of Law to Facts: The Tribunal directed the AO to verify the timing of the return filing in relation to the extended deadline.
• Treatment of Competing Arguments: The Tribunal considered the assessee's claim about the extended deadline and directed verification.
• Conclusions: The issue was restored to the AO for verification and adjudication.

3. SIGNIFICANT HOLDINGS

• Verbatim Quotes of Crucial Legal Reasoning: "The disallowance of employees' contribution to PF/ESIC for breach of condition under Section 36(1)(va) is in controversy."
• Core Principles Established: The Tribunal emphasized the need for verification of remittance dates for employer contributions and the timing of salary disbursement for employee contributions.
• Final Determinations on Each Issue: The Tribunal restored the issues to the AO for verification and further examination, allowing the appeals partly for statistical purposes.