2022 (12) TMI 286 - AT - Income Tax

Tribunal Upholds Timely Deposit of Employees' Contributions to PF and ESI

CC Engineers Pvt. Ltd. Versus The I.T.O. Ward 1 (1), Pune

CC Engineers Pvt. Ltd. Versus The I.T.O. Ward 1 (1), Pune - TMI Issues Involved:1. Disallowance of employees' contribution to Provident Fund (PF) and Employee State Insurance (ESI) deposited outside the statutory due date but before the due date of filing the return.2. Adjustment done by CPC in processing return under section 143(1) alleging delayed payment of PF, ESI employee contribution.3. Retrospective applicability of the amendment to section 43B and explanation to section 36(1)(va) by Finance Act, 2021.4. Disallowance of deduction for Education Cess and secondary and higher education cess.Detailed Analysis:1. Disallowance of Employees' Contribution to PF and ESI:The first issue pertains to the disallowance of employees' contribution to PF and ESI, which was deposited beyond the statutory due date but before the due date of filing the return under section 139(1) of the Income Tax Act, 1961. The assessee argued that as per various decisions of the Pune Tribunal, such contributions are deductible if paid before the due date of filing the return. However, the recent judgment by the Hon'ble Supreme Court in the case of Checkmate Services P. Ltd. Vs. CIT-1 clarified that the employer is duty-bound to deposit the employees' contribution within the due date specified in the respective statutes. The Supreme Court held that the non-obstante clause in section 43B does not override the employer's obligation to deposit the employees' contribution on or before the due date as a condition for deduction. Consequently, the Tribunal upheld the disallowance, stating that the assessee is not entitled to the deduction under section 36(1)(va) read with section 43B, and the amount must be added to the total income as deemed income.2. Adjustment by CPC under Section 143(1):The second issue involves the adjustment done by CPC in processing the return under section 143(1), alleging delayed payment of PF and ESI employee contributions. The assessee contended that such adjustments are outside the scope authorized under section 143(1)(a). However, given the Supreme Court's ruling that the contributions must be deposited within the due date specified in the respective statutes, the Tribunal found no merit in the assessee's argument and upheld the adjustment made by the CPC.3. Retrospective Applicability of Amendment to Section 43B and Explanation to Section 36(1)(va):The third issue concerns the retrospective applicability of the amendment to section 43B and the explanation to section 36(1)(va) inserted by the Finance Act, 2021. The assessee argued that the amendment is applicable prospectively from the assessment year 2021-22. However, the Tribunal, following the Supreme Court's judgment, held that the amendment clarifies the legislative intent and applies to the current assessment year. Therefore, the disallowance was upheld.4. Disallowance of Deduction for Education Cess:The fourth issue is the disallowance of deduction for Education Cess and secondary and higher education cess. The Tribunal noted the statutory amendment to section 40(a) with retrospective effect, which disallows such deductions. Additionally, the Tribunal referred to the judgment of the Hon'ble Supreme Court in CIT Vs. K. Shrinivasan, which held that Education Cess is an additional surcharge on income tax and is not allowable as a deduction. The Tribunal, therefore, dismissed the ground raised by the assessee.Conclusion:The Tribunal dismissed the appeal of the assessee, upholding the disallowances made by the Revenue authorities. The decisions were based on the recent Supreme Court judgment and statutory amendments, which clarified the legislative intent and the conditions for the deductibility of employees' contributions to PF and ESI, as well as the non-allowability of Education Cess as a deduction. The Tribunal found no infirmity in the Revenue authorities' findings and dismissed all grounds raised by the assessee.