2022 (12) TMI 286 - AT - Income Tax

Disallowance of PF and ESI contribution deposited outside the statutory due date under said Act - amount paid before due date of filing the return - HELD THAT - When the money is given by the employees, the employer is holding that money on behalf of the employees in the manner of good faith and trust. They are not part of the employers income, nor are they heads of deduction per se in the form of statutory pay out. In fact, they are others income, money, only deemed to be income with the object of ensuring that they are paid within the due date specified in that particular statute. Therefore, they have to be deposited in terms of such welfare enactment. It is open to deposit in terms of those statutes on or before the due date as mandated by such concerned law that the amount which is otherwise retained and is deemed income in the hands of the employer is therefore, treated as a deduction. Essentially the condition precedent for deduction is that therefore, such amounts which are held in trust for the employees should be deposited by the employer on or before the due date as prescribed under the relevant Statutes. The Hon'ble Supreme Court CHECKMATE SERVICES P. LTD. 2022 (10) TMI 617 - SUPREME COURT further held that if this approach and reasoning is adopted then the non-obstante clause u/s 43B or anything contained in that provision would never absolve the assessee-employer from its liability to deposit employees contribution on or before the due date as mentioned in the respective enactments as a condition for deduction. In view thereof, the Hon'ble Apex Court upheld the findings of Hon'ble Gujarat High Court and also stated that the decisions of other Hon'ble High Courts holding to the contrary do not lay down the correct proposition of law. Reverting to the facts of the present case, it is an admitted fact that the payment of employees contribution to the provident fund was made before the due date of filing of return of income u/s 139(1) but beyond the due date as provided in the respective Statutes. Respectfully following the judgment of Hon'ble Supreme Court (supra) we hold that the assessee-employer was duty bound to deposit the employees contribution to provident fund within the due date as mentioned in the respective Statutes. Since this was not done the assessee is not entitled for deduction u/s 36(1)(va) read with section 43B of the Act and the said amount has to be construed as deemed income of the assessee and added to his total income. We do not find therefore, any infirmity with the findings of the Revenue authorities and the Grounds No. 1, 2 and 3 of assessee s appeal of the assessee stands dismissed. Disallowance of deduction on Education cess and secondary and higher education cess - HELD THAT - Following the aforesaid decisions and the Amendment taken place in the Statute with retrospective effect to section 40(a) we hold that payment of Education Cess including secondary and higher secondary education is not an allowable deduction. Ground No. 4 is dismissed.

Issues Involved:
1. Disallowance of employees' contribution to Provident Fund (PF) and Employee State Insurance (ESI) deposited outside the statutory due date but before the due date of filing the return.
2. Adjustment done by CPC in processing return under section 143(1) alleging delayed payment of PF, ESI employee contribution.
3. Retrospective applicability of the amendment to section 43B and explanation to section 36(1)(va) by Finance Act, 2021.
4. Disallowance of deduction for Education Cess and secondary and higher education cess.

Detailed Analysis:

1. Disallowance of Employees' Contribution to PF and ESI:
The first issue pertains to the disallowance of employees' contribution to PF and ESI, which was deposited beyond the statutory due date but before the due date of filing the return under section 139(1) of the Income Tax Act, 1961. The assessee argued that as per various decisions of the Pune Tribunal, such contributions are deductible if paid before the due date of filing the return. However, the recent judgment by the Hon'ble Supreme Court in the case of Checkmate Services P. Ltd. Vs. CIT-1 clarified that the employer is duty-bound to deposit the employees' contribution within the due date specified in the respective statutes. The Supreme Court held that the non-obstante clause in section 43B does not override the employer's obligation to deposit the employees' contribution on or before the due date as a condition for deduction. Consequently, the Tribunal upheld the disallowance, stating that the assessee is not entitled to the deduction under section 36(1)(va) read with section 43B, and the amount must be added to the total income as deemed income.

2. Adjustment by CPC under Section 143(1):
The second issue involves the adjustment done by CPC in processing the return under section 143(1), alleging delayed payment of PF and ESI employee contributions. The assessee contended that such adjustments are outside the scope authorized under section 143(1)(a). However, given the Supreme Court's ruling that the contributions must be deposited within the due date specified in the respective statutes, the Tribunal found no merit in the assessee's argument and upheld the adjustment made by the CPC.

3. Retrospective Applicability of Amendment to Section 43B and Explanation to Section 36(1)(va):
The third issue concerns the retrospective applicability of the amendment to section 43B and the explanation to section 36(1)(va) inserted by the Finance Act, 2021. The assessee argued that the amendment is applicable prospectively from the assessment year 2021-22. However, the Tribunal, following the Supreme Court's judgment, held that the amendment clarifies the legislative intent and applies to the current assessment year. Therefore, the disallowance was upheld.

4. Disallowance of Deduction for Education Cess:
The fourth issue is the disallowance of deduction for Education Cess and secondary and higher education cess. The Tribunal noted the statutory amendment to section 40(a) with retrospective effect, which disallows such deductions. Additionally, the Tribunal referred to the judgment of the Hon'ble Supreme Court in CIT Vs. K. Shrinivasan, which held that Education Cess is an additional surcharge on income tax and is not allowable as a deduction. The Tribunal, therefore, dismissed the ground raised by the assessee.

Conclusion:
The Tribunal dismissed the appeal of the assessee, upholding the disallowances made by the Revenue authorities. The decisions were based on the recent Supreme Court judgment and statutory amendments, which clarified the legislative intent and the conditions for the deductibility of employees' contributions to PF and ESI, as well as the non-allowability of Education Cess as a deduction. The Tribunal found no infirmity in the Revenue authorities' findings and dismissed all grounds raised by the assessee.

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