2023 (4) TMI 1095 - AT - Income Tax

Disallowance being payment of Provident Fund and ESI u/s.36(1)(va) - intimation u/s 143(1) - incorrect claim apparent from any information in the return - as per assessee payments have not been made within the due date of 15 day of next months as per the respective Act but made much before the due date of filling of return income - HELD THAT - Hon ble Supreme Court in the case of Checkmate Services Private Limited 2022 (10) TMI 617 - SUPREME COURT has decided this issue against the Assessee. Once the Hon ble Supreme Court has held that if the payment has been made with respect employees contribution after the due date, the same has to be disallowed and cannot be allowed as deduction and therefore, adjustment has rightly been made If there is any incorrect claim apparent from any information in the return, then adjustment is permissible. Here in this case, once the claim of deduction as per the law in not allowable, same can be disallowed in the intimation u/s 143(1). The judgment of Hon ble Supreme Court is a law, which has to be interpreted that this was the position of law from the date of enactment of provision. The auditor in the audit report specifies the due date as prescribed u/s. 36(1)(va) of the Act and the date on which deposit has been made, then in the computation of income, the same cannot be claimed as deduction, because the law envisages that such payment is disallowable, because it has not been paid within the due date. Accordingly, we hold that such an adjustment is permissible under the scope of section 143(1) of the Act Decided against assessee.

Summary

Issues Involved:

1. Disallowance of Provident Fund (PF) and Employee State Insurance (ESI) payments under Section 36(1)(va) of the Income-tax Act, 1961.
2. Adjustment under Section 143(1) of the Income-tax Act, 1961.

Summary:

Issue 1: Disallowance of PF and ESI Payments

The Assessee challenged the disallowance of Rs. 13,73,999/- for the Assessment Year (A.Y.) 2018-19, which was made on account of late payment of employee contributions towards PF and ESI. The Assessee argued that the payments, although not made within the statutory due date, were made before the due date of filing the return of income under Section 139(1). However, the Learned Commissioner of Income Tax (Appeals) [Ld.CIT(A)] upheld the disallowance, citing various judicial pronouncements and the provisions of Section 143(1)(a)(iv) of the Income-tax Act.

The Hon'ble Supreme Court in "Checkmate Services Private Limited vs. CIT" clarified that Section 36(1)(va) specifically deals with employees' contributions and mandates that these contributions must be deposited on or before the due date specified in the respective Acts. The Supreme Court emphasized the distinction between employers' and employees' contributions, noting that employees' contributions are held in trust by the employer and must be deposited timely to qualify for deductions.

Issue 2: Adjustment under Section 143(1)

Section 143(1)(a) allows for adjustments in the return for any apparent incorrect claims. The Tribunal noted that since the claim of deduction for employees' contributions was not allowable as per the Supreme Court's interpretation, it could be disallowed in the intimation under Section 143(1). The Tribunal directed that the disallowance should be restricted to the employees' contribution amounting to Rs. 6,74,509/- for A.Y. 2018-19.

For A.Y. 2019-20, the Tribunal applied the same rationale, directing the Assessing Officer to disallow only the employees' contribution amounting to Rs. 7,88,835/-.

Conclusion:

Both appeals filed by the Assessee were partly allowed, with the Tribunal directing the disallowance to be restricted to the employees' contributions for both assessment years. The order was pronounced in the open court on 13th March 2023.