2023 (3) TMI 729 - AT - Income Tax

ITAT upholds disallowance of PF & ESI contributions in employer's appeal

The Income Tax Appellate Tribunal (ITAT) dismissed the appellant's appeal, upholding the disallowances of employees' contributions to Provident Fund and ... Employee’s contribution towards provident fund and ESIC which was paid beyond the period prescribed - disallowance in terms of section 143(1) - As argued auditors did not specifically mention in the audit report regarding inadmissibility of claim with respect to contributions received from the employees for various funds as referred to in section 36(1)(va) - HELD THAT:- Once the auditor has mentioned the “actual” dates of ESI/PF remittance and the “due” dates of ESI/PF remittance by the assessee u/s 36(1)(va) of the Act at serial number 20(b) of the audit report, then, in our considered view, the requirement of section 143(1) of the Act viz. “disallowance of expenditure ….indicated in the tax audit report” stands satisfied and the Department is permitted to make disallowance in terms of section 143(1) of the Act. Debatable issue - As decided in Checkmate Services Private Ltd [2022 (10) TMI 617 - SUPREME COURT] non obstante clause under section 43B could not apply in case of amounts which were held in trust as was case of employee's contribution which were deducted from their income and was not part of assessee-employer's income, thus, said clause would not absolve assessee-employer from its liability to deposit employee's contribution on or before due date as a condition for deduction. As recently Pune ITAT in the case of Cemetile Industries [2022 (12) TMI 354 - ITAT PUNE] held that where assessee-employer deposited amount of employees contribution towards employees' provident fund and employees' state insurance corporation beyond due date stipulated in respective Acts, disallowance made under section 36(1)(va) was justified. ITAT further held that adjustment under section 143(1)(a) by means of disallowance made for late deposit of employees' share to relevant funds beyond date prescribed under respective Acts was proper. Respectfully following the decision of Checkmate Services Private Ltd [2022 (10) TMI 617 - SUPREME COURT] and Harrisons Malayalam Ltd [2023 (1) TMI 137 - SC ORDER] and in the light of our observations, we hereby dismiss the assessee’s appeal. Issues:1. Disallowance of employees' contribution to Provident Fund.2. Disallowance of employees' contribution to ESI.3. Denial of reasonable opportunity of being heard.4. Non-consideration of revised return by the Commissioner of Income Tax (Appeal).5. General grounds for appeal.Issue 1 - Disallowance of employees' contribution to Provident Fund:The appellant contested the disallowance of Rs. 2,02,462 as employees' contribution to Provident Fund, arguing it is an expense, not income, paid before the return due date. The Commissioner of Income Tax (Appeals) upheld the disallowance citing clarificatory amendments by the Finance Act 2021. The ITAT observed that the auditor's report did not require specific mention of claim admissibility under section 36(1)(va) of the Act. The Tribunal referred to various court decisions, including the Supreme Court's ruling in Checkmate Services (P.) Ltd., emphasizing that the employer's liability to deposit employee contributions on time remains, dismissing the appeal.Issue 2 - Disallowance of employees' contribution to ESI:Similarly, the appellant challenged the disallowance of Rs. 24,605 as employees' contribution to ESI, asserting its nature as an expense paid before the return due date. The ITAT's decision on this issue aligned with the Provident Fund disallowance, emphasizing the employer's obligation to timely deposit employee contributions, as clarified by court precedents.Issue 3 - Denial of reasonable opportunity of being heard:The appellant raised a legal ground regarding the denial of a reasonable opportunity to be heard by the Commissioner of Income Tax (Appeals). However, the ITAT's decision did not specifically address this issue in the detailed analysis.Issue 4 - Non-consideration of revised return:The appellant contended that the Commissioner of Income Tax (Appeal) failed to consider the revised return duly accepted by the CPC Bengaluru, resulting in a refund without modification. This was categorized as a legal ground, but the ITAT's decision did not provide a separate analysis for this issue.Issue 5 - General grounds for appeal:The appellant reserved the right to make modifications in the grounds of appeal arising from the order. This general ground was noted without specific discussion in the detailed analysis provided by the ITAT.In conclusion, the ITAT dismissed the appellant's appeal, upholding the disallowances related to employees' contributions to Provident Fund and ESI. The decision was based on the interpretation of relevant sections of the Income Tax Act, supported by court judgments emphasizing the employer's responsibility to timely deposit such contributions. The ITAT's ruling was in line with legal precedents and the clarifications provided by the Finance Act 2021, leading to the dismissal of the appeal on the specified grounds.