2021 (2) TMI 634 - AT - Income Tax

Tribunal decision on employee contributions & TDS: upheld provident fund disallowance, dismissed TDS appeal.

Café D Lake Private Limited Versus Income Tax Officer, Ward-1 (4), Hyderabad

The tribunal upheld the disallowance of the employee's contribution to provident fund and ESI, citing Section 36(1)(va) of the Income Tax Act and relevant ... Addition u/s. 36(i)(va) - employee's contribution to provident fund and ESI as deducted from the employee's salary and not remitted into the Government treasury within the period stipulated under the relevant Act. - AR submitted that the assessee had remitted the employee's contribution towards PF and ESI which was deducted from their salary within the due date of filing the return under the Income Tax Act, 1961 and therefore, the disallowance is not warranted - HELD THAT:- We do not find any merit in the submission of the assessee on this issue. Section 36(1)(va) of the Act specifically provides that if the assessee remits the employee's contribution to Provident Fund/ESI within the due date mentioned in the relevant Act P.F Act, then the deduction will be allowable - Section 43B of the Act, only provides that deduction will be allowed with respect to employer's contribution to provident fund if the same is remitted within the due date of filing the return of income. Section 36(1)(va) of the Act refers to employee's contribution to P.F/ESI while as Section 43B of the Act refers to employer's contribution to P.F. Hence Section 43B of the Act has no application with respect to employee's contribution to P.F./ESI. Accordingly Section 43B of the Act will not override the provisions of Section 36(1)(va) of the Act with respect to employee's contribution to provident fund. It is pertinent to mention that though employee's & employer's contribution to P.F/ESI are remitted by the employer into the Government treasury, they are separate and distinct for which independent provisions have been cast under the Act. Employee's contribution to P.F./ESI, is nothing but appropriation of a portion of the salary which is legitimately due to the employee and remitted by the employer in the Government treasury on behalf of the employee in accordance with the provisions of the relevant P.F., Act. -We hereby confirm the Orders of the Revenue Authorities on these issues. Accordingly, Ground No. 1 is held against the assessee. Disallowance u/s. 40(a)(ia) - AO had disallowed 30% as allowable deduction because the assessee has not deducted tax at source as per the provisions of the Act towards audit fees and interest expenditure debited to P & L Account - CIT(A) has deleted the addition made by the Ld. AO - HELD THAT:- This ground raised by the assessee does not survive. Issues:1. Disallowance of employee's contribution to provident fund and ESI.2. Disallowance under section 40(a)(ia) for not deducting tax at source on audit fees and interest expenditure.Issue 1: Disallowance of employee's contribution to provident fund and ESI:The appeal was filed against the order of the Ld. CIT(A) upholding the addition made by the Ld. AO for non-remittance of employee's contribution to provident fund and ESI. The Ld. CIT(A) confirmed the disallowance, stating that the payments were made after the statutory due date. The appellant argued that the remittances were made before the due date of filing the return, relying on judicial decisions. However, the tribunal found no merit in the appellant's submission. Section 36(1)(va) of the Act allows deduction only if the employee's contribution is remitted within the due date mentioned in the relevant Act. The tribunal clarified that Section 43B, which pertains to employer's contribution, does not apply to employee's contribution. Citing relevant case laws, the tribunal upheld the disallowance of the employee's contribution to provident fund and ESI. Consequently, the appeal on this issue was held against the assessee.Issue 2: Disallowance under section 40(a)(ia) for not deducting tax at source:The Ld. AO disallowed 30% of the amount debited to the P & L Account towards audit fees and interest expenditure for not deducting tax at source. On appeal, the Ld. CIT(A) deleted the addition made by the Ld. AO, resulting in this ground raised by the assessee not surviving. Therefore, the tribunal dismissed the appeal of the assessee on this issue.In conclusion, the tribunal confirmed the disallowance of the employee's contribution to provident fund and ESI, citing relevant provisions of the Income Tax Act and judicial precedents. Additionally, the tribunal noted the deletion of the disallowance under section 40(a)(ia) by the Ld. CIT(A). The appeal of the assessee was ultimately dismissed, and the orders of the Revenue Authorities were upheld.