2025 (1) TMI 816 - HC - Income Tax

Delayed payment of employees contribution to Provident Fund (PF) and Employees State Insurance (ESI) - HELD THAT - From relevant extracts of the decision of Checkmate Services (P) Ltd. 2022 (10) TMI 617 - SUPREME COURT it is evident that the assessee has to make payment of the contribution to PF and ESI before the statutory dates in order to claim the amount as deduction. Admittedly, the assessee has not paid the aforesaid amount on or before the statutory dates. The findings of fact has been recorded by the AO, CIT(A) as well as by the Tribunal. The aforesaid finding of fact cannot, by any stretch of imagination, be said to be perverse. It is not the case of the assessee that the aforesaid finding of fact is perverse. It is well settled in law that this Court, in exercise of powers u/s 260A of the Act, cannot interfere with the finding of fact until and unless the same is demonstrated to be perverse. (See Syeda Rahimunnisa vs. Malan Bi by LRs 2016 (10) TMI 1233 - SUPREME COURT and Softbrands India Private Limited 2018 (6) TMI 1327 - KARNATAKA HIGH COURT ) - No substantial question of law arises.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

Whether the appellant (assessee) is entitled to claim a deduction for the delayed payment of employees' contributions to the Provident Fund (PF) and Employees' State Insurance (ESI) under the Income Tax Act, 1961.
Whether the findings of fact regarding the non-payment of contributions within statutory deadlines can be challenged as perverse under Section 260A of the Income Tax Act, 1961.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Entitlement to Deduction for Delayed Payment of Contributions

Relevant Legal Framework and Precedents: The legal framework involves Section 36(1)(va) and Section 43B of the Income Tax Act, 1961. The Supreme Court decision in Checkmate Services (P) Ltd. v. CIT is a key precedent, which clarifies the treatment of employees' contributions to PF and ESI.
Court's Interpretation and Reasoning: The court referred to the Supreme Court's interpretation in Checkmate Services, which emphasizes the necessity for timely payment of employees' contributions to claim deductions. The intention behind the statutory provisions is to ensure timely deposits and prevent employers from retaining funds.
Key Evidence and Findings: The assessee admitted to not depositing the employees' contributions within the statutory dates, although the amounts were paid before filing the return of income.
Application of Law to Facts: Based on the Supreme Court's ruling, the court concluded that the assessee is not entitled to deductions for contributions paid after the statutory deadlines, even if paid before filing the return.
Treatment of Competing Arguments: The assessee argued that the issue is debatable and has not attained finality. However, the court dismissed this argument, relying on the clear precedent set by the Supreme Court.
Conclusions: The court upheld the Tribunal's decision, affirming that the assessee cannot claim deductions for delayed contributions.

Issue 2: Challenge to Findings of Fact as Perverse

Relevant Legal Framework and Precedents: Section 260A of the Income Tax Act, 1961, governs appeals to the High Court on substantial questions of law. The court referenced precedents such as Syeda Rahimunnisa vs. Malan Bi by LRs and Principal Commissioner of Income Tax, Bangalore vs. Softbrands India Private Limited.
Court's Interpretation and Reasoning: The court emphasized that findings of fact cannot be interfered with unless demonstrated to be perverse. The assessee did not argue that the findings were perverse.
Key Evidence and Findings: The findings of fact by the assessing officer, CIT(A), and the Tribunal were consistent and not challenged as perverse by the assessee.
Application of Law to Facts: The court applied the principle that factual findings are not subject to review unless shown to be perverse, which was not the case here.
Treatment of Competing Arguments: The court noted the absence of any argument from the assessee challenging the factual findings as perverse.
Conclusions: The court concluded that there is no substantial question of law for consideration, and thus, the appeal was dismissed.

3. SIGNIFICANT HOLDINGS

Verbatim Quotes of Crucial Legal Reasoning: The court quoted the Supreme Court's reasoning: "In the opinion of this Court, the reasoning in the impugned judgment that the non-obstante clause would not in any manner dilute or override the employer's obligation to deposit the amounts retained by it or deducted by it from the employee's income, unless the condition that it is deposited on or before the due date, is correct and justified."
Core Principles Established: The judgment reinforces the principle that timely payment of employees' contributions is essential for claiming deductions under the Income Tax Act. It also underscores the limited scope of appellate review concerning factual findings unless demonstrated to be perverse.
Final Determinations on Each Issue: The court determined that the assessee is not entitled to deductions for delayed contributions and that no substantial question of law arises for consideration in the appeal.

In conclusion, the judgment is a reaffirmation of the legal principles governing the deduction of employees' contributions to statutory funds and the appellate review of factual findings under the Income Tax Act.

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