2023 (8) TMI 1634 - AT - Income Tax

Disallowance of employees contribution to Provident Fund/ESIC u/s 36(i) - as submitted that the impugned employee s contribution towards PF and ESIC has been paid and deposited before the due date allowed u/s 139(1) although the assessee has remitted the payment belatedly and beyond the due dates specified in respects Acts - HELD THAT - The issue towards taxability of belated employees contribution to Provident Fund/ESIC is no longer res initegra in the light of the judgment of Checkmate Services (P.) Ltd. 2022 (10) TMI 617 - SUPREME COURT Tribunal in Cemetile Industries 2022 (12) TMI 354 - ITAT PUNE had expressed a view that such adjustment/disallowance is also permissible in the proceedings carried out under Section 143(1) of the Act. Very recently in Savleen Kaur Others 2023 (2) TMI 51 - ITAT DELHI has also taken a similar view and upheld the action of the Revenue. In parity with the view taken by Co-ordinate Benches we do not see any merit in the appeal of the assessee on first principles. In the case of Sentinel Consultants Pvt. Ltd. 2023 (6) TMI 1419 - ITAT DELHI observed that order that month during which the disbursement of salary is actually made would be relevant for the purposes of determination of due date. Consequently we consider it expedient to restore the issue back to the file of AO for factual verification and redetermination in the issue on the light of determination made in the case of Kanoi Paper and Industries Ltd. 2001 (5) TMI 139 - ITAT CALCUTTA-E The AO shall thus re-compute the amount of disallowance u/s 36(i)(va) of the Act if any on the above basis in accordance with law and allow relief under Section 36(i)(va) of the Act where it is found that deposits have been made towards PF/ESIC within the due date from the close of month of actual disbursement of salary/wages. Appeal of the assessee is allowed ex parte for statistical purposes.

Summary

ISSUES PRESENTED and CONSIDERED

The primary issue in this appeal was whether the disallowance of the employee's contribution to Provident Fund (PF) and Employees' State Insurance Corporation (ESIC) under Section 36(i)(va) read with Section 43B of the Income Tax Act, 1961, was justified when the contributions were deposited after the due dates specified in the respective Acts but before the due date for filing the income tax return under Section 139(1) of the Act.

ISSUE-WISE DETAILED ANALYSIS

Relevant Legal Framework and Precedents

The legal framework involves Section 36(i)(va) of the Income Tax Act, which allows deductions for contributions to PF/ESIC if paid within the due dates prescribed under the relevant Acts. Section 43B, however, allows such deductions if payments are made before the due date for filing the return of income under Section 139(1). The Supreme Court's judgment in Checkmate Services (P.) Ltd. vs. CIT clarified that belated contributions are taxable income under Section 2(24)(x) and not deductible under Section 36(i)(va) if paid after the due date specified in the respective Acts.

Court's Interpretation and Reasoning

The Tribunal noted that the issue of taxability of belated employees' contribution to PF/ESIC was settled by the Supreme Court in Checkmate Services (P.) Ltd. vs. CIT. The Tribunal also referenced the Pune Bench's decision in Cemetile Industries vs. ITO, which supported disallowance of such contributions during proceedings under Section 143(1). The Tribunal found no merit in the assessee's appeal based on these precedents.

Key Evidence and Findings

The Tribunal considered the assessee's claim that the contributions were paid before the due date for filing the return under Section 139(1), albeit after the due dates under the PF/ESIC Acts. The Revenue's addition of Rs.8,11,063/- to the assessee's income was based on these late deposits.

Application of Law to Facts

The Tribunal applied the Supreme Court's interpretation in Checkmate Services, affirming that contributions paid after the statutory due dates but before the tax return filing due date do not qualify for deductions under Section 36(i)(va). The Tribunal also applied the methodology from Sentinel Consultants Pvt. Ltd. regarding the determination of due dates based on the actual disbursement of salaries.

Treatment of Competing Arguments

The assessee argued that deductions should be allowed as the payments were made before the due date for filing the return. However, this argument was countered by the Revenue's reliance on the Supreme Court's ruling in Checkmate Services, which the Tribunal upheld. The Tribunal also considered the methodology for calculating defaults as discussed in Sentinel Consultants Pvt. Ltd. and Kanoi Paper and Industries Ltd.

Conclusions

The Tribunal concluded that the issue should be remanded to the Assessing Officer (AO) for factual verification and re-evaluation in light of the Tribunal's interpretation in Sentinel Consultants Pvt. Ltd. and Kanoi Paper and Industries Ltd. The AO was directed to recompute the disallowance under Section 36(i)(va) and provide appropriate relief if deposits were made within the due date from the month of actual salary disbursement.

SIGNIFICANT HOLDINGS

The Tribunal held that:

• The disallowance of employee contributions to PF/ESIC is justified if paid after the due dates specified in the respective Acts, as per the Supreme Court's ruling in Checkmate Services.
• The determination of due dates should consider the month of actual salary disbursement, as discussed in Sentinel Consultants Pvt. Ltd. and Kanoi Paper and Industries Ltd.
• The case was remanded to the AO for a fresh determination of the issue, with instructions to provide relief if contributions were deposited within the due date from the month of actual disbursement.

The Tribunal's decision underscores the necessity of adhering to statutory due dates for PF/ESIC contributions and clarifies the application of Section 36(i)(va) in light of recent judicial interpretations.