2023 (5) TMI 1283 - AT - Income Tax

Late PF and ESIC contributions disallowed under section 143(1) following Supreme Court's Checkmate Services judgment on employee deductions

ITAT Ahmedabad upheld disallowance of late PF and ESIC contributions under section 143(1) proceedings. Following Supreme Court's Checkmate Services ... Disallowance of employees' contributions as deemed income under Section 36(1)(va) - adjustments in intimation proceedings under section 143(1)(a) based on audit report information - non-obstante clause in section 43B and its inapplicability to employees' contributions held in trust - requirement that tax audit report indicate remittance dates for enabling disallowance under section 143(1)(a)(iv)Disallowance of employees' contributions as deemed income under Section 36(1)(va) - adjustments in intimation proceedings under section 143(1)(a) based on audit report information - non-obstante clause in section 43B and its inapplicability to employees' contributions held in trust - Validity of disallowance of late-paid employees' PF and ESIC contributions made by CPC in intimation under section 143(1)(a) and its confirmation by NFAC. - HELD THAT: - The Tribunal held that amounts deducted from employees' salaries and retained by the employer are deemed income under section 2(24)(x) and, for assessment years prior to AY 2021-22, the non-obstante clause in section 43B does not permit belated deposit to qualify for deduction; deposit on or before the statutory due date is an essential condition for deduction under section 36(1)(va). Further, section 143(1)(a)(iv) permits disallowance of expenditure 'indicated in the audit report'; Form 3CD clause 20(b) requires disclosure of due dates and actual dates of remittance and does not mandate an express auditor opinion on admissibility. Where the auditor has recorded actual and due dates of remittance in the tax audit report, the condition in section 143(1)(a)(iv) is satisfied and CPC is entitled to make the adjustment in the intimation. The Tribunal applied and followed the Supreme Court decision in Checkmate Services (P.) Ltd. and subsequent authoritative decisions, and concluded that the CPC's disallowance in the 143(1) intimation was within law and rightly confirmed by NFAC. [Paras 7, 8, 9]Disallowance of late payment of employees' PF and ESIC made in intimation under section 143(1)(a) and confirmed by NFAC is valid; the assessee's appeal is dismissed.Final Conclusion: Following the Supreme Court precedents and relevant provisions of section 143(1)(a), the Tribunal dismissed the assessee's appeal and upheld the disallowance of belatedly paid employees' contributions under section 36(1)(va) for AY 2019-20. Issues Involved:1. Late payment of PF and ESIC contributions by the assessee.2. Sufficient opportunity of hearing during COVID-19.3. Jurisdiction and permissible adjustments under Section 143(1).4. Applicability of amendments by the Finance Act, 2021.5. Proper appreciation of facts and submissions by lower authorities.6. Levying of interest under Section 234A/B/C of the Act.Summary:1. Late Payment of PF and ESIC Contributions:The solitary issue in this appeal is whether the late payment of PF and ESIC contributions by the assessee, deposited before the due date of filing the Income Tax Return, can be disallowed in the intimation dated 14.07.2020 passed u/s. 143(1) of the Act. The assessee, a proprietor of M/s. Star Labour Services, filed its Return of Income for AY 2019-20, which was processed u/s. 143(1). The CPC issued a communication regarding the disallowance u/s. 36(1)(va) due to late payment of PF and ESIC, which the assessee did not respond to, leading to the disallowance.2. Sufficient Opportunity of Hearing During COVID-19:The assessee contended that the CIT(A) erred in not granting sufficient opportunity of hearing, especially during the COVID-19 pandemic, violating the principles of natural justice.3. Jurisdiction and Permissible Adjustments Under Section 143(1):The assessee argued that the disallowance was without jurisdiction and beyond the permissible adjustments contemplated u/s. 143(1) of the Act. The Tribunal noted that the CPC had given a communication to the assessee, which was not responded to, justifying the disallowance as an incorrect claim apparent from the return information.4. Applicability of Amendments by the Finance Act, 2021:The assessee argued that the amendments made by the Finance Act, 2021, are not applicable. However, the Tribunal, following the Hon'ble Supreme Court's judgment in Checkmate Services (P.) Ltd., held that the non-obstante clause under section 43B does not apply to employees' contributions which are deducted from their income and held in trust by the employer.5. Proper Appreciation of Facts and Submissions by Lower Authorities:The assessee claimed that the lower authorities did not properly appreciate the facts and submissions, breaching the principles of natural justice. The Tribunal found that the CPC's action was within the provisions of law, given the lack of response from the assessee.6. Levying of Interest Under Section 234A/B/C:The assessee also contested the levy of interest under Section 234A/B/C of the Act. The Tribunal upheld the disallowance and the consequential levy of interest.Conclusion:The Tribunal dismissed the appeal, upholding the disallowance of late payment of PF and ESIC contributions u/s. 143(1) as valid in law, following the Supreme Court's judgment in Checkmate Services (P.) Ltd. The grounds raised by the assessee were found to be devoid of merits, and the appeal was dismissed.