2023 (4) TMI 626 - AT - Income Tax

Disallowance of employees contribution towards PF/ESI u/s 36(1)(va) - AR submitted that the assessee deposited the contribution towards PF/ESI belatedly, however, the said deposits were made prior to filing of return of income under section 139(1) - HELD THAT - We find that the matter is squarely covered by the decision of Hon ble Supreme Court in case of Checkmate Services P. Ltd. Ors. 2022 (10) TMI 617 - SUPREME COURT wherein after taking into consideration the relevant provisions of the Act as well as the provisions of relevant welfare ESI/PF schemes, it was held that the contribution by the employees to the relevant funds is the employer s income under section 2(24)(x), but the deduction for the same can be allowed under section 36(1)(va) only if such sum is deposited in the employee s account in the relevant fund before the date stipulated under the respective Act and as rightly pointed out by the DR that the ratio laid down by the Hon ble Karnataka High Court 2014 (3) TMI 386 - KARNATAKA HIGH COURT stand overruled by the decision of the Hon ble Supreme Court and the same doesn t support the case of the assessee. Disallowance made by CPC while processing the return of income and specially in the context of 143(1)(a)(iv) - we find that the matter is squarely covered by the decision Cemetile Industries Ors 2022 (12) TMI 354 - ITAT PUNE - CIT(A) was justified in sustaining the adjustment u/s 143(1)(a) by means of disallowance made for late deposit of employees share of PF/ESI contribution to the relevant funds beyond the date prescribed under the respective Acts. Appeal of the assessee is dismissed.

Summary

Issues Involved:
1. Sustenance of disallowance of employees' contribution towards PF/ESI under section 36(1)(va) of the Act.
2. Applicability of Section 143(1)(a)(iv) for disallowance during return processing.

Summary:

1. Sustenance of Disallowance of Employees' Contribution towards PF/ESI:
The assessee filed its return of income declaring a total income of Rs. 9,38,359/-. The return was processed by the CPC, leading to a disallowance of Rs. 8,87,262/- under Section 143(1)(a)(iv) due to the assessee's failure to pay employees' contributions to PF/ESI before the prescribed due date. The Ld. CIT(A) upheld the disallowance, stating that the employees' contribution can only be allowed as a deduction if paid within the prescribed due date under the relevant welfare funds. This position of law was affirmed by the amendment to the provision, which applies retrospectively.

2. Applicability of Section 143(1)(a)(iv) for Disallowance During Return Processing:
The assessee argued that the contribution was deposited before the filing of the return under Section 139(1) and cited a similar case for A.Y. 2019-20 where the appeal was allowed. However, the legal position changed after the Supreme Court's decision in Checkmate Services P. Ltd. & Ors. Vs. CIT & Ors., which upheld the distinction between employers' and employees' contributions under different provisions of the Income Tax Act. The Supreme Court ruled that the employees' contribution held in trust by the employer must be deposited by the due date under the relevant statute to prevent misuse. The Tribunal noted that the disallowance made by CPC while processing the return of income under Section 143(1)(a)(iv) was justified, as the audit report clearly indicated the delay in deposit beyond the due date.

Conclusion:
The Tribunal found that the matter is covered by the Supreme Court's decision in Checkmate Services P. Ltd. & Ors. Vs. CIT & Ors., which mandates that employees' contributions must be deposited before the due date stipulated under the respective Acts for deduction under Section 36(1)(va). The Tribunal upheld the adjustment under Section 143(1)(a) for the late deposit of employees' share of PF/ESI contributions, dismissing the assessee's appeal.