2023 (2) TMI 48 - AT - Income Tax

Disallowance of employees contribution to Provident Fund as well as ESIC - Disallowance u/s 36(1)(va) - employees contribution towards PF though the same were paid before the due date for filing of return - HELD THAT - In 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) of the Act but beyond the due date as provided in the respective Statutes. 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 - 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 Respectfully following the judgment of Hon'ble Supreme Court in CHECKMATE SERVICES P. LTD. VERSUS COMMISSIONER OF INCOME TAX-1 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 both the appeals of the assessee are dismissed.

Summary

Issues Involved:
1. Disallowance of employees' contribution towards Provident Fund (PF) under section 36(1)(va) of the Income-tax Act, 1961.
2. Timeliness of the deposit of employees' PF contributions in relation to the due dates prescribed under respective statutes.

Detailed Analysis:

1. Disallowance of Employees' Contribution towards Provident Fund:
The primary issue in these appeals is the disallowance of the employees' contribution towards Provident Fund under section 36(1)(va) of the Income-tax Act, 1961. The appellant contended that the contributions were paid before the due date for filing the return of income under section 139(1) of the Act. However, the Assessing Officer (A.O.) disallowed the deduction on the grounds that the contributions were not deposited within the due dates prescribed under the respective statutes.

2. Timeliness of Deposit:
The case hinges on whether the contributions made after the statutory due dates but before the filing of the return of income can be allowed as deductions. The appellant referenced various decisions from the Pune Tribunal and other High Courts, which supported the view that such contributions are deductible if paid before the due date for filing the return. However, the Revenue authorities and the Tribunal followed the recent Supreme Court judgment, which emphasized the necessity of depositing employees' contributions within the due dates prescribed by the respective statutes for the deduction to be allowed.

Condonation of Delay:
The appeals were admitted despite being time-barred by 94 and 96 days, respectively, based on the Supreme Court's judgment in Cognizance for Extension of Limitation, which condoned the delay due to the pandemic.

Supreme Court Judgment Analysis:
The Tribunal extensively referred to the Supreme Court's judgment, which clarified the distinction between employers' contributions (section 36(1)(iv)) and employees' contributions (section 36(1)(va)). The Court held that employees' contributions are deemed income under section 2(24)(x) and must be deposited within the due dates specified in the respective statutes. The non-obstante clause in section 43B does not override this obligation. The Supreme Court emphasized that amounts deducted from employees' income are held in trust by the employer and must be deposited timely to qualify for deduction.

Conclusion:
Following the Supreme Court's judgment, the Tribunal concluded that the appellant was not entitled to the deduction under section 36(1)(va) as the contributions were not deposited within the due dates prescribed by the respective statutes. Consequently, the disallowed amounts were added to the appellant's total income, and the appeals were dismissed.

Order:
Both appeals filed by the assessee were dismissed, and the order was pronounced in the open court on November 7, 2022.