2022 (12) TMI 1308 - AT - Income Tax

Disallowance of employees contribution to Provident Fund as well as ESIC - delayed deposit the employees contribution to provident fund within the due date - HELD THAT - As 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) of the Act but beyond the due date as provided in the respective Statutes. Respectfully following the judgment of Hon'ble Supreme Court Checkmate Services P. Ltd. 2022 (10) TMI 617 - SUPREME COURT 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 appeal of the assessee is dismissed.

Issues Involved:
1. Disallowance of the claim regarding belated remittance of employees' provident fund contribution.
2. Interpretation of the amendment by the Finance Act, 2021, and its prospective or retrospective effect.
3. Timeliness of the appeal filing.

Detailed Analysis:

1. Disallowance of the Claim Regarding Belated Remittance of Employees' Provident Fund Contribution:

The primary issue in this appeal is the disallowance of the employees' contribution to the Provident Fund and ESIC. The appellant argued that according to various decisions by the Pune Tribunal, if the employees' contribution to the provident fund is paid before the due date of filing the return of income, it is deductible under section 43B of the Income-tax Act, 1961. The appellant contended that the amendment made by the Finance Act, 2021, which inserted Explanation 2 to section 43B, is applicable prospectively from A.Y. 2021-22. In this case, the payment was made before the due date of filing the return of income under section 139(1) of the Act.

The Tribunal noted that various Benches of the ITAT have held that if the assessee has not deposited employees' contribution to EPF, ESI, etc., within the due date prescribed under the respective statutes but paid before the due date of filing the return of income under section 139(1), the A.O. was directed to delete additions made under section 36(1)(va) of the Act. The Pune Tribunal has passed orders in favor of the assessees, relying on the Hon'ble Jurisdictional High Court in the case of CIT Vs. Ghatge Patil Transports Ltd. and other High Courts' decisions.

However, the Hon'ble Supreme Court, in the case of Checkmate Services P. Ltd. Vs. CIT-1, observed that there was a division of opinion among various High Courts regarding the interpretation of section 36(1)(va) and section 43B. The Supreme Court analyzed the legal essence of welfare legislations such as ESI, EPF, etc., and held that the employees' contributions are not part of the employers' income but are held in trust for the employees. Therefore, these contributions must be deposited on or before the due date specified in the respective statutes to qualify for deduction under section 36(1)(va). The Supreme Court upheld the Gujarat High Court's decision, stating that the non-obstante clause under section 43B does not absolve the employer from the liability to deposit the employees' contribution on or before the due date.

2. Interpretation of the Amendment by the Finance Act, 2021, and Its Prospective or Retrospective Effect:

The appellant argued that the explanation to section 36 by the Finance Act, 2021, has a prospective effect and not a retrospective effect. The Tribunal, following the Supreme Court's judgment, held that the amendment by the Finance Act, 2021, inserting Explanation 2 to section 43B, is applicable prospectively from A.Y. 2021-22. However, the Supreme Court's interpretation of the existing provisions clarified that the employees' contributions must be deposited within the due date specified in the respective statutes to qualify for deduction, irrespective of the amendment.

3. Timeliness of the Appeal Filing:

The appeal was time-barred by 23 days. However, the delay was condoned based on the Hon'ble Supreme Court's judgment in Cognizance for Extension of Limitation, In re, and the appeal was admitted for disposal on merits.

Conclusion:

In conclusion, the Tribunal, following the Supreme Court's judgment, held that the assessee-employer was duty-bound to deposit the employees' contribution to the provident fund within the due date mentioned in the respective statutes. Since this was not done, the assessee is not entitled to deduction under section 36(1)(va) read with section 43B of the Act, and the said amount is to be construed as deemed income of the assessee and added to his total income. The appeal filed by the assessee was dismissed.

← Previous Next →