2025 (2) TMI 1026 - AT - Income Tax

Disallowance of payment made towards employees contribution to Provident Fund (PF) and Employee s State Insurance Corporation ( ESIC ) u/s. 36(1)(va) - HELD THAT - Section 36(1)(va) of the Act very clearly provides that if employees contribution to PF ESIC are not paid within the stipulated time period such amount has to be treated as income of the assessee u/s. 2(24)(x) of the Act. In fact the issue is no more res integra in view of the ratio laid down in the case of Checkmate Services Pvt Ltd 2022 (10) TMI 617 - SUPREME COURT Even the assessee accepts the aforesaid position. However the assessee has made an alternative claim that the payment can still be allowed as business expense u/s. 37(1). This claim of the assessee has to be rejected at the threshold in view of the position of law declared in the case of Checkmate Services Pvt Ltd 2022 (10) TMI 617 - SUPREME COURT has decided that delayed payment of employee s contribution to PF ESIC cannot be allowed as deduction the assessee cannot expect the very same relief under another provision. When section 36(1)(va) of the Act mandates that such contribution has to be treated as income of the assessee . Insofar as the judicial precedents relied upon by the learned counsel of the assessee on a careful perusal we are of the view that in none of the decisions the alternate claim of deduction u/s. 37(1) of the Act has been accepted. Decided in favour of assessee. Taxability of unrealized foreign exchange fluctuation gain - HELD THAT - Assessee has consistently followed a Revenue recognition method under which the gain/loss arising on account of foreign exchange fluctuation has been treated as revenue in nature . Therefore wherever gain arose the assessee offered it as income and wherever there was loss the assessee has claimed the loss. Following such revenue recognition principle the assessee has offered the gain as income in the impugned assessment year. Therefore since the offer of gain as income is consistent with the accounting principle regularly followed by the assessee claim of withdrawal of such income cannot be accepted. If assessee s claim of foreign exchange fluctuation loss has not been accepted by the Revenue in some other assessment years the issue has to be thrashed out in those assessment years and not here. Rule of consistency applies not only to the assessee but also to the Revenue. In case the gain derived is treated to be in the character of revenue the loss arising in similar account also has to be treated to be on revenue account. The department has to take a consistent stand on this issue. With the afore-said observations this ground is dismissed. Disallowance of additional claim of deduction - additional claim made by the assessee has been rejected only on the ground that such claim was not made through a revised return of income - HELD THAT - The restriction imposed on the A.O. in entertaining an additional claim not made through revised return of income does not apply to the appellate authorities. Therefore learned first appellate authority should have examine the additional claim made by the assessee. Since we have held that the assessee can make additional claim which was not made in the return of income assessee s claim has to be verified factually by looking into the relevant facts and evidences. Such examination having not taken place before the Departmental Authorities we are inclined to restore the issue to the A.O. for fresh adjudication.

The issues presented and considered in the legal judgment are as follows:1. Whether the disallowance of payment made towards employees' contribution to Provident Fund (PF) and Employee's State Insurance Corporation (ESIC) under section 36(1)(ea) of the Income Tax Act, 1961 is justified.2. Whether the taxability of unrealized foreign exchange fluctuation gain should be upheld.3. Whether additional claims of deduction made by the assessee should be entertained without a revised return of income.Issue 1: Disallowance of PF and ESIC ContributionsThe relevant legal framework is section 36(1)(va) of the Income Tax Act, which mandates that if employees' contributions to PF and ESIC are not paid within the stipulated time period, such amounts are to be treated as income of the assessee. The court considered the decision of the Hon'ble Supreme Court in the case of Checkmate Services Pvt Ltd Vs. CIT, which established that delayed payments of such contributions cannot be allowed as deductions. The assessee argued for the allowance of the payments as a business expense under section 37(1) of the Act, citing various precedents. However, the court rejected this claim, stating that the Supreme Court's decision precludes such deductions. The court also noted that the alternate claim of deduction under section 37(1) was not accepted in the cited precedents. Therefore, the disallowance of the contributions was upheld.Issue 2: Taxability of Unrealized Foreign Exchange Fluctuation GainThe court considered the consistent revenue recognition method followed by the assessee, where gains and losses from foreign exchange fluctuations were treated as revenue items. The assessee claimed that if losses were treated as capital in nature, gains should also be treated similarly. The court dismissed the claim, stating that the assessee's revenue recognition method was consistent and that any issues regarding losses should be addressed in separate assessment years. The court emphasized the principle of consistency for both the assessee and the Revenue in treating such gains and losses.Issue 3: Additional Claims of DeductionThe assessee made additional claims of deduction during the assessment proceedings, which were rejected by the Assessing Officer (AO) and the first appellate authority due to not being made through a revised return of income. The court held that while the AO may be restricted from entertaining additional claims not in a revised return, the appellate authorities are not bound by the same restriction. Therefore, the court allowed the grounds for statistical purposes and directed the AO to reexamine the additional claims after providing the assessee with a reasonable opportunity to be heard.Significant Holdings:- The court upheld the disallowance of employees' contributions to PF and ESIC, citing the decision of the Hon'ble Supreme Court.- The court emphasized the principle of consistency in treating gains and losses from foreign exchange fluctuations.- The court allowed the additional claims of deduction to be reexamined by the AO for factual verification.Overall, the court dismissed the appeal in one case and partly allowed it for statistical purposes in another, directing further examination of the additional claims of deduction.

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