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2025 (4) TMI 1034 - AT - Income TaxDisallowance u/s 36(1)(va) - delayed payments of employee contributions towards PF and ESIC - HELD THAT - As decided in Suzlon Energy Ltd 2020 (2) TMI 792 - GUJARAT HIGH COURT where assessee had not deposited employees contributions towards PF and ESI within prescribed period in law and AO by invoking provisions of section 36(1)(va) read with section 2(24)(x) made addition of aforesaid amount to income of assessee impugned addition made to income of assessee was justified. Section 38 of the Employees Provident Funds and Miscellaneous Provisions Act 1952 makes it obligatory for the employer before paying him his wages to deduct the employee s contribution along with the employer s own contribution as fixed by Government. The employer is further obliged to pay the same within fifteen days of the close of every month pay i.e. such contribution and administrative charges. The reference to fifteen days of the close of the month must be in relation to month during which the payment of wages is to be made and corresponding liability to deduct employee s contribution to the fund arises. Decided against assessee.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Tribunal in these appeals are:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Justification of Disallowance under Section 36(1)(va) for Delayed Payment of Employee Contributions towards PF and ESIC Relevant Legal Framework and Precedents: Section 36(1)(va) of the Income Tax Act disallows any expenditure in respect of employee contributions to PF and ESIC if such contributions are not paid within the prescribed time. The Employees Provident Funds and Miscellaneous Provisions Act, 1952, specifically Section 38, mandates that employee contributions along with employer's contributions must be deposited within fifteen days from the close of every month. The Supreme Court in Checkmate Services Pvt. Ltd. Vs. Commissioner of Income Tax (2022) clarified that non-payment of employee contributions within the due date leads to disallowance under Section 36(1)(va), irrespective of whether payment is made before filing the return. Court's Interpretation and Reasoning: The Tribunal noted that the Assessing Officer (AO) made disallowance based on delayed payment of employee contributions, as supported by the Tax Audit Report highlighting discrepancies in payment dates vis-`a-vis prescribed due dates. The CIT(A) upheld this disallowance, relying on the Supreme Court's ruling and legislative amendments by the Finance Act, 2021, which clarified that employee contributions are not entitled to the leniency available for employer contributions under Section 43B. Key Evidence and Findings: The Tax Audit Report and return processing details showed that employee contributions were not deposited within the prescribed 15-day period following the month of salary payment. The AO's disallowance of Rs. 36,72,752/- for AY 2019-20 and Rs. 1,00,35,800/- for AY 2021-22 was based on this delay. Application of Law to Facts: The Tribunal found that the delay contravened the statutory obligation under the Employees Provident Funds Act and the Income Tax Act's provisions, justifying disallowance. Treatment of Competing Arguments: The assessee argued that the delay should be calculated from the actual date of salary payment, not the month-end, and that the matter was debatable due to conflicting High Court decisions. However, the Tribunal confronted this with the binding decision of the Gujarat High Court in Principal Commissioner of Income-tax vs. Suzlon Energy Ltd., which held that the 15-day period is to be reckoned from the close of the month, not the salary payment date. Conclusions: The Tribunal upheld the disallowance under Section 36(1)(va) for delayed payment of employee contributions, as mandated by the statutory provisions and judicial precedents. Issue 2: Proper Computation of Due Date for Payment of Employee Contributions Relevant Legal Framework and Precedents: Section 38 of the Employees Provident Funds and Miscellaneous Provisions Act, 1952, requires payment within fifteen days of the close of every month. The Gujarat High Court in Suzlon Energy Ltd. clarified that the obligation to deposit employee contributions arises with reference to the month for which wages are paid, and the 15-day period is counted from the end of that month. Court's Interpretation and Reasoning: The Tribunal emphasized the binding nature of the Suzlon decision, which rejected the assessee's contention that the 15-day period should be counted from the actual salary payment date. The Court reasoned that the statutory language "within fifteen days of the close of every month" must be interpreted in relation to the month during which the wages are payable and corresponding liability to deduct employee contributions arises. Key Evidence and Findings: The assessee's own submissions and the Tax Audit Report indicated that payments were made after the prescribed due date as per the statutory timeline. Application of Law to Facts: The Tribunal applied the Suzlon ruling to the facts, confirming that the delay was established as per the statutory timeline. Treatment of Competing Arguments: The assessee's argument based on alternate High Court decisions and the timing of salary payment was rejected in light of the jurisdictional High Court's authoritative ruling. Conclusions: The Tribunal concluded that the due date for deposit of employee contributions is the 15th day after the close of the month in which salary is payable, and the assessee's delay constituted non-compliance. Issue 3: Effect of Contradictory High Court Judgments and Debatable Nature of the Issue Relevant Legal Framework and Precedents: The assessee contended that different High Courts had rendered contradictory decisions on the timing and consequences of delayed payment of employee contributions, rendering the issue debatable and contentious. Court's Interpretation and Reasoning: The Tribunal acknowledged the existence of differing judicial opinions but emphasized the binding nature of the jurisdictional High Court decision (Gujarat High Court) in Suzlon Energy Ltd. The Tribunal further noted that the Supreme Court's ruling in Checkmate Services Pvt. Ltd. reinforced the principle that timely payment of employee contributions is mandatory and non-compliance attracts disallowance. Key Evidence and Findings: The Tribunal relied on the binding precedent and legislative amendments to resolve the conflicting judicial opinions. Application of Law to Facts: The Tribunal applied the binding precedent over other contradictory judgments, thereby rejecting the assessee's contention of debatable nature. Treatment of Competing Arguments: The Tribunal rejected the argument that the issue was debatable and that the disallowance was premature or unjustified. Conclusions: The Tribunal held that the disallowance was justified notwithstanding the existence of conflicting High Court decisions, as the binding jurisdictional High Court and Supreme Court decisions supported the AO's action. Issue 4: Whether Payment Obligation Arises When Contributions Are Not Paid Directly to Employees Relevant Legal Framework and Precedents: The assessee argued that since contributions are not paid directly to employees but to statutory funds, the obligation to deduct and pay contributions does not arise in the same manner, and thus disallowance under Section 36(1)(va) is not appropriate. Court's Interpretation and Reasoning: The Tribunal, referring to the Employees Provident Funds and Miscellaneous Provisions Act, 1952, clarified that the employer is statutorily bound to deduct employee contributions before paying wages and deposit the same within the prescribed period. The obligation is independent of direct payment to employees and relates to statutory compliance. Key Evidence and Findings: The statutory provisions impose a clear duty on the employer to deduct and deposit employee contributions timely, regardless of payment to employees. Application of Law to Facts: The Tribunal found that the assessee failed to comply with this statutory obligation, and the disallowance under Section 36(1)(va) was warranted. Treatment of Competing Arguments: The Tribunal rejected the assessee's contention that non-payment to employees negated the deduction and payment obligation. Conclusions: The Tribunal held that the statutory obligation to deduct and deposit employee contributions exists irrespective of direct payment to employees, and delay attracts disallowance. 3. SIGNIFICANT HOLDINGS The Tribunal, relying on the binding jurisdictional High Court decision in Principal Commissioner of Income-tax vs. Suzlon Energy Ltd., held:
The Tribunal affirmed the principle that non-payment of employee contributions within the prescribed period leads to disallowance under Section 36(1)(va) of the Income Tax Act, irrespective of payment before filing the return, as upheld by the Supreme Court. The Tribunal rejected the assessee's arguments based on alternative High Court decisions and the timing of salary payment, emphasizing the binding nature of the jurisdictional High Court ruling and legislative amendments. Consequently, the Tribunal dismissed the appeals, confirming the additions made by the Assessing Officer and upheld by the Commissioner of Income Tax (Appeals), thereby reinforcing the strict compliance requirement for timely deposit of employee contributions under the Income Tax Act and the Employees Provident Funds Act.
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