2021 (8) TMI 1219 - AT - Income Tax

Employee contributions to ESI & EPF must be timely deposited for tax deductions. Tribunal disallows Rs. 94,33,788 deduction.

The Tribunal upheld the CIT(A)'s decision, dismissing the appeal and affirming that employee contributions to ESI and EPF must be deposited within the ... Addition u/s 36 (1)(va) - delay in depositing the ESI and EPF - employees' contribution to specified fund - amount has been paid beyond the due date as prescribed in the ESI & PF Act - HELD THAT:- As relying on M/S. EAGLE TRANS SHIPPING AND LOGISTICS (INDIA) PRIVATE LTD. [2019 (10) TMI 704 - ITAT DELHI] and M/S. BHARAT HOTELS LTD. [2018 (9) TMI 798 - DELHI HIGH COURT] Assessee company is not entitled for deduction u/ s 36(1)(va) of the Act claimed on account of depositing the employees contribution towards ESI & PF as per provisions contained u/s 2(24)(x) read with section 36(1)(va) after due date - Decided against assessee. Issues Involved:1. Addition of Rs. 94,33,788 under Section 36(1)(va) of the Income Tax Act, 1961 due to delay in depositing ESI and EPF.Issue-wise Detailed Analysis:1. Addition under Section 36(1)(va):The primary issue is the addition of Rs. 94,33,788 under Section 36(1)(va) due to the delayed deposit of Employee's State Insurance (ESI) and Employees' Provident Fund (EPF). The Assessing Officer (AO) made this addition because the contributions were paid beyond the due dates prescribed under the respective Acts. However, the payments were made before the due date for filing the income tax return for the assessment year 2018-19.2. Allowability of Deduction:The assessee argued that the deduction should be allowed based on the provisions of Section 43B, which permits deductions if payments are made before the due date of filing the return. The CIT(A) disallowed the claim, stating that the amounts were not paid before the due dates as prescribed under the ESI and PF Acts.3. Judicial Precedents:The assessee relied on several case laws to support their claim, including decisions from the Bombay High Court and the Supreme Court in the case of CIT vs. Alom Extrusions Ltd. However, the Tribunal referred to various High Court judgments, such as those from the Madras High Court (M/s. Unifac Management Services (India) Pvt. Ltd. vs. DCIT), Kerala High Court (CIT vs. Merchem Ltd.), and Bombay High Court (CIT vs. Ghatge Patil Transports Ltd.), which held that Section 43B covers only the employer's contributions and not the employee's contributions.4. Distinction Between Employer and Employee Contributions:The Tribunal emphasized that Section 36(1)(va) and Section 43B operate in different fields. Section 36(1)(va) pertains to employee contributions, which must be credited to the relevant fund on or before the due date specified under the respective Acts. In contrast, Section 43B covers employer contributions, which can be deducted if paid before the due date for filing the return.5. Legislative Amendments:The Tribunal noted the amendments proposed in the Budget 2021 to provide clarity on the non-applicability of Section 43B to employee contributions. The amendments introduced Explanation 2 to Section 36(1)(va) and Explanation 5 to Section 43B, clarifying that Section 43B does not apply to employee contributions.6. Supreme Court Decision in Alom Extrusions Ltd.:The Tribunal clarified that the Supreme Court's decision in Alom Extrusions Ltd. pertains to employer contributions under Section 43B(b) and not to employee contributions under Section 36(1)(va).7. Jurisdictional High Court Rulings:The Tribunal referred to the jurisdictional High Court's decision in CIT vs. Bharat Hotels Ltd., which held that deductions for employee contributions are only allowable if the contributions are deposited within the due dates specified under the respective Acts.Conclusion:The Tribunal upheld the CIT(A)'s order, disallowing the deduction of Rs. 94,33,788 for delayed deposits of employee contributions to ESI and EPF. The appeal filed by the assessee was dismissed, affirming that employee contributions must be deposited within the due dates specified under the relevant statutes to qualify for deductions under Section 36(1)(va).Order Pronouncement:The appeal of the assessee was dismissed, and the order was pronounced in the Open Court on 26/08/2021.