2022 (1) TMI 280 - AT - Income Tax

Late payment of Provident Fund and ESIC u/s 43B - HELD THAT - As relying on PRO INTERACTIVE SERVICE (INDIA) PVT. LTD. 2018 (9) TMI 2009 - DELHI HIGH COURT and Aimil Limited 2009 (12) TMI 38 - DELHI HIGH COURT the amount paid is allowed as an expenditure only when payment is actually made. We do not think that the legislative intent and objective is to treat belated payment of Employee s Provident Fund (EPD) and Employee s State Insurance Scheme (ESI) as deemed income of the employer under section 2(23)(x) of the Act. - the issue is covered against the Revenue - Assessing Officer directed to delete the disallowance

Issues Involved:
1. Sustaining the addition of ?373,030 due to late payment of Provident Fund (PF) and Employee State Insurance Corporation (ESIC) under Section 43B of the Income Tax Act.
2. Applicability of the Bharat Hotels Limited case in determining the quantum of disallowance.
3. Rights of the Centralized Processing Center (CPC) to make adjustments under Section 143(1) for debatable issues like those under Section 43B.

Issue-wise Detailed Analysis:

1. Sustaining the addition of ?373,030 due to late payment of PF/ESIC under Section 43B:
The primary contention revolves around whether the late payment of employees' contributions towards PF and ESIC should be disallowed under Section 36(1)(va) or allowed under Section 43B. The assessee argued that the issue is covered by favorable judgments from the Delhi High Court, specifically citing the cases of PCIT vs Pro Interactive Service (India) Pvt. Ltd. and CIT vs AIMIL Ltd. The CIT(A) upheld the addition, noting that Section 36(1)(va) explicitly requires employees' contributions to be deposited by the due date prescribed under the relevant Acts. The CIT(A) emphasized that Section 43B pertains only to the employer's contribution and does not extend to employees' contributions, thus disallowing the late payment under Section 36(1)(va).

2. Applicability of the Bharat Hotels Limited case:
The CIT(A) relied on the Delhi High Court's decision in CIT vs Bharat Hotels Ltd., which clarified that employees' contributions deposited beyond the stipulated period are not deductible. This decision was considered more recent and specific compared to the earlier cases cited by the assessee. The CIT(A) argued that the legislative intent was clear in distinguishing between the treatment of employer's and employees' contributions, with the latter strictly governed by Section 36(1)(va).

3. Rights of the CPC to make adjustments under Section 143(1):
The CIT(A) justified the CPC's adjustments under Section 143(1), stating that the disallowance of employees' contributions deposited late is an "incorrect claim apparent from any information in the return." The CIT(A) referenced Sub-Clause (ii) of Clause (a) of Section 143(1), which permits adjustments for incorrect claims evident from the return's information. The CIT(A) concluded that the CPC acted within its scope by disallowing the late payment of employees' contributions.

Conclusion:
The Tribunal found merit in the assessee's contention that the issue is covered by the Delhi High Court's judgment in AIMIL Ltd., which allows deductions for employees' contributions paid before the filing of the return. The Tribunal also cited the case of PCIT vs Pro Interactive Service (India) Pvt. Ltd., reinforcing that the legislative intent was to allow such deductions if payments were made before the return filing date. Consequently, the Tribunal directed the Assessing Officer to delete the disallowance, allowing the assessee's appeal.

Final Judgment:
The appeal of the assessee was allowed, and the disallowance of ?373,030 was directed to be deleted by the Assessing Officer. The order was pronounced in the open court on 29.12.2021.

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