2020 (3) TMI 124 - HC - Income Tax

Court Upholds Disallowance of Deduction for PF and ESI Contributions

Sequel Logostics Private Limited Versus Chief Commissioner of Income Tax

The High Court upheld the disallowance of the deduction for employees' contribution to Provident Fund and Employees State Insurance due to delayed ... Delay in deposit of employee’s contribution to Provident Fund and ESI u/s 2(24)(x) r.w.s. 36(1)(va) - HELD THAT:- The aforesaid issue is squarely covered against the assessee by Hon’ble jurisdictional High Court’s judgment in the case of CIT vs. Gujarat State Road Transport Corporation [2014 (1) TMI 502 - GUJARAT HIGH COURT] wherein it is categorically held that in the case of delayed deposit of employees’ contribution to PF, the same will not be deductable in computing income under section 28 of the Act. The law so laid down by the Hon’ble jurisdictional High Court is binding on us. The mere fact that an appeal against the said decision is pending before the Hon’ble Supreme Court does not dilute binding nature of this judicial precedent. Also in the case of Ask Me Lab Con Services Ltd V/s. Income Tax Officer Ward [2019 (6) TMI 759 - GUJARAT HIGH COURT] by following the decision given in the case of M/s Checkmate Facility and Electronic Solutions Pvt. Ltd. [2018 (10) TMI 994 - GUJARAT HIGH COURT] held that due date of deposit of PF and ESI contribution is to be considered from close of the month, for which charges is required to be paid by the employer. - Decided against assessee Issues:1. Disallowance of employees' contribution to Provident Fund and Employees State Insurance under Section 36(a)(va) read with Section 2(24)(x) of the Income Tax Act, 1961.2. Interpretation of due date for payment of contribution to Provident Fund and Employees State Insurance Scheme.Issue 1: Disallowance of employees' contribution to Provident Fund and Employees State Insurance:The appellant-assessee filed a return of income for A.Y. 2010-11 claiming deduction for the amount paid towards employees' contribution to Provident Fund and Employees' State Insurance under Section 36(1)(va) read with Section 2(24)(x) of the Act, 1961. However, the Assessing Officer disallowed the claimed deduction as the amount was not paid within the due date. The CIT(A) dismissed the appeal, leading the appellant to appeal before the Tribunal. The Tribunal upheld the disallowance, citing a previous judgment by the High Court, which held that delayed deposit of employees' contribution to PF is not deductible under Section 28 of the Act. The Tribunal concluded that the appellant's case had no legally sustainable merit based on the binding precedent.Issue 2: Interpretation of due date for payment of contribution to Provident Fund and Employees State Insurance Scheme:The appellant argued that the High Court's judgment, which formed the basis of the disallowance, was challenged before the Supreme Court, and hence, the issue should be kept alive. However, the Court noted that the issue was already settled in a previous case where it was held that the due date for depositing PF and ESI contributions is within fifteen days of the close of the month for which wages are to be paid. Another case supported this interpretation, emphasizing the importance of the close of the month in determining the due date. Consequently, the Court found that none of the questions proposed by the appellant could be considered substantial questions of law, leading to the dismissal of the appeal.In conclusion, the High Court upheld the disallowance of the deduction for employees' contribution to Provident Fund and Employees State Insurance due to delayed deposits, in line with established legal precedents. Additionally, the Court clarified the interpretation of the due date for payment of such contributions, emphasizing the significance of the close of the month in determining the timeline for depositing PF and ESI contributions.