2022 (11) TMI 1543 - AT - Income Tax

Delayed payment of PF and ESI in respect of employees contribution - submission that the payment was made before the due date of filing of the return u/s. 139(1) - HELD THAT - Admittedly the Hon ble Supreme Court in the case of Checkmate Services Pvt Ltd. 2022 (10) TMI 617 - SUPREME COURT has categorically held that the employees contribution to PF and ESI to the extent it is not paid within due date prescribed under the PF Act is not allowable u/s. 36(1)(va). The Hon ble Supreme Court has also admittedly held that the provisions of section 43B would not apply to the provisions of section 36(1)(va) of the Act in respect of employees contribution. Respectfully following the decision supra we are of the view that the delayed payment in respect of employees contribution to PF and ESI is not allowable. In the case of Nirakar Security Consultancy Services Pvt. Ltd. 2022 (11) TMI 69 - ITAT CUTTACK Liberty is granted to the ld AR to make all submissions in respect of allowability of disallowed contribution of the employees to PF and ESI under other relevant provisions in the interest of justice. This direction is being given because ld AR has submitted that as the amount is not allowable under section 36(1)(va) of the Act and same is also not covered under section 43B of the Act the amount of delayed contribution to PF and ESI in respect of employees contribution would be treated as income in the hands of the assessee u/.s. 2(24)(x) and on subsequent payment of the same it would be a business expenditure which can be claimed u/s. 37(1). Thus this appeal is restored to the file of the AO for re-adjudication after granting the assessee adequate opportunity of being heard. Appeal of the assessee stands partly allowed for statistical purposes

Summary

ISSUES PRESENTED and CONSIDERED

The core issue considered in this appeal was the allowability of the delayed payment of employees' contributions to Provident Fund (PF) and Employees' State Insurance (ESI) under the Income Tax Act, specifically whether such payments, made after the due date prescribed under the relevant PF Act but before the due date of filing the income tax return, are allowable deductions under sections 36(1)(va) and 43B of the Income Tax Act.

ISSUE-WISE DETAILED ANALYSIS

Relevant Legal Framework and Precedents

The legal framework in question involves sections 36(1)(va) and 43B of the Income Tax Act. Section 36(1)(va) pertains to the deduction of employees' contributions to PF and ESI, provided they are paid within the due date prescribed under the respective Acts. Section 43B allows certain deductions only on actual payment, notwithstanding the accrual basis of accounting.

The Tribunal relied on the precedent set by the Supreme Court in the case of Checkmate Services Pvt Ltd vs CIT, where it was held that employees' contributions to PF and ESI paid beyond the prescribed due date are not allowable deductions under section 36(1)(va), even if paid before the due date for filing the income tax return. The Supreme Court also clarified that section 43B does not apply to employees' contributions.

Court's Interpretation and Reasoning

The Tribunal interpreted the Supreme Court's decision as binding and unequivocal, determining that the delayed payment of employees' PF and ESI contributions is not allowable under section 36(1)(va). The Tribunal acknowledged that the Supreme Court explicitly stated that section 43B does not apply to employees' contributions, reinforcing the non-allowability of such deductions when payments are delayed beyond the statutory due date.

Key Evidence and Findings

The Tribunal noted the undisputed fact that the payments in question were made after the due date prescribed under the relevant PF Act but before the due date for filing the income tax return. The Tribunal's findings were primarily based on the legal precedent established by the Supreme Court, which directly addressed the issue at hand.

Application of Law to Facts

Applying the Supreme Court's ruling to the facts of the case, the Tribunal concluded that the delayed payment of employees' contributions to PF and ESI is not allowable as a deduction under section 36(1)(va). The Tribunal emphasized the binding nature of the Supreme Court's decision, which clarified that section 43B does not provide relief for such delayed payments.

Treatment of Competing Arguments

The Tribunal considered the assessee's argument that the delayed contributions should be allowable under other provisions of the Income Tax Act, such as section 37(1), once the payments were made. However, the Tribunal did not express an opinion on this argument, as it had not been examined by the lower authorities. Instead, the Tribunal granted the assessee the liberty to raise these arguments before the Assessing Officer during the re-adjudication process.

Conclusions

The Tribunal concluded that, in light of the Supreme Court's decision in Checkmate Services Pvt Ltd, the delayed payment of employees' contributions to PF and ESI is not allowable under section 36(1)(va) and that section 43B does not apply to such contributions. The Tribunal restored the issue to the Assessing Officer for re-adjudication, allowing the assessee to present additional arguments regarding the allowability of the contributions under other provisions of the Income Tax Act.

SIGNIFICANT HOLDINGS

Core Principles Established

The Tribunal's decision reaffirmed the principle established by the Supreme Court that employees' contributions to PF and ESI paid after the statutory due date are not deductible under section 36(1)(va), and section 43B does not apply to such contributions.

Final Determinations on Each Issue

The Tribunal determined that the delayed payment of employees' contributions to PF and ESI is not allowable under section 36(1)(va) and that the provisions of section 43B do not apply. The appeal was partly allowed for statistical purposes, with the issue being remanded to the Assessing Officer for further examination and re-adjudication, allowing the assessee to present additional arguments regarding the allowability of the contributions under other provisions of the Income Tax Act.