2023 (7) TMI 738 - AT - Income Tax

Tribunal allows appeal on EPF/ESIC delay, deletes disallowance. Profit on asset sale remanded for review.

The tribunal allowed the appeal, condoning the delay in payment of EPF and ESIC contributions due to the due dates falling on holidays, and deleted the ... Late payment of PF & ESI (Employee’s Contribution) - one day delay - due date for payment of ESIC and EPF contributions prescribed in the respective acts of ESI & PF falls on Sunday or gazetted holiday - HELD THAT:- Considering the fact that the due date for depositing the contribution of ESIC & EPF falls on Sunday and gazetted holiday, the said delay of one day deserves to be condoned as per Section 10 of General Clauses Act. Also observed that the assessee has no intention not to deposit the contribution of ESI & EPF well within the time, depositing the contribution very next day of Holiday proves the bona-fide of the Assessee. Therefore, in our opinion, the authorities have committed error in disallowing the deposit made with one day delay where the due date under respective acts falls either on Sunday or on gazetted holiday. Decided in favour of assessee. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether employee contributions to EPF and ESIC, deposited one day after the statutory due date because the due date fell on a Sunday or gazetted holiday, are deductible for computing business income or are liable to be disallowed under section 36(1)(va) read with section 43B of the Income-tax Act? 2. Whether the computation-of-time provision in Section 10 of the General Clauses Act (and by reference the principle in Section 4 of the Limitation Act) applies to statutory dues payable in a public or office holiday such that a deposit made on the next working day is treated as made in time for the purposes of statutory cut-off dates governing deductibility? 3. Whether subsequent authoritative decisions holding that delayed EPF/ESIC deposits beyond prescribed periods are not allowable affect the assessee's entitlement where the delay is by one day solely due to a holiday (i.e., lex prospicit / retrospective application issue and whether the issue was debatable at the time of processing under section 143(1)). 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Allowability of one-day late deposit of employee contributions to EPF/ESIC under section 36(1)(va) read with section 43B Legal framework: Section 36(1)(va) and section 43B require employee contributions to social security funds to be paid within stipulated time to be deductible; non-compliance ordinarily results in disallowance. The Court considered statutory due dates under the Employees' Provident Funds Scheme and the ESIC Act for deposit of employees' contributions. Precedent treatment: There exists authoritative jurisprudence holding that deposits of EPF/ESIC after the statutory period are not allowable; that jurisprudence was acknowledged by the Tribunal as having settled the general rule against post-due deposits. However, those precedents address the broader rule and do not ineluctably decide cases where delay is due to a holiday and reduced to one day. Interpretation and reasoning: The Tribunal examined the undisputed fact that the statutory due dates fell on a Sunday or gazetted holiday and that deposits were made on the next working day. Applying Section 10 of the General Clauses Act (computation of time), the Tribunal reasoned that where an act is directed to be done on a certain day and the office is closed on that day, the act will be considered as done in due time if effected on the next working day. The Tribunal also noted the assessee's bona fide conduct - immediate payment the following day - as probative of absence of intent to evade payment timelines. Ratio vs. Obiter: Ratio - where the statutory due date for deposit of EPF/ESIC falls on a day when the relevant office is closed (Sunday or gazetted holiday), a deposit made on the next working day is to be treated as made in due time for purposes of deductibility under section 36(1)(va) read with section 43B. Obiter - general observations about bona fides and administrative practice were used to support the result but are not determinative beyond similar holiday-related fact patterns. Conclusion: The one-day delays caused by the due date falling on a Sunday or gazetted holiday were condoned. The disallowance of contributions totalling the amounts specifically noted for EPF and ESIC (as limited in the appeal) was deleted. Issue 2 - Applicability of Section 10 of the General Clauses Act / Section 4 of the Limitation Act to statutory deposit deadlines for EPF/ESIC Legal framework: Section 10 of the General Clauses Act provides that where an act is directed to be done on a certain day and the court or office is closed on that day, the act is deemed done in time if performed on the next day the office is open; the proviso excludes acts to which the Limitation Act applies. Section 4 of the Limitation Act (computation where last day is a holiday) provides similar relief concerning limitation periods. Precedent treatment: The Tribunal referred to administrative circulars and case law cited by the assessee (which supported the principle that returns or payments made on the next working day following a holiday are to be treated as timely) but observed that later authoritative adjudications had narrowed the general allowance for late payments. The Tribunal nevertheless treated the General Clauses Act provision as applicable to the facts before it. Interpretation and reasoning: Focusing on the statutory language, the Tribunal concluded Section 10 applies to Central Acts and regulations and governs computation of time where an office is closed. Because the due date fell on an office-closed day and the deposits occurred on the next working day, Section 10 rendered the payments timely. The Tribunal distinguished the broader anti-allowance rule by confining the relief to the narrowly pleaded and proved fact of a one-day holiday-caused delay. Ratio vs. Obiter: Ratio - Section 10 of the General Clauses Act applies to statutory due-date deposits where the designated day is an office holiday, and thus a deposit on the next working day is treated as in time for statutory requirements governing deductibility. Obiter - reliance on Section 4 of the Limitation Act and administrative circulars served as supporting authority but were not necessary to the decision given the primary reliance on Section 10. Conclusion: Section 10 governs the computation of time in the presented fact pattern and supports treating the payments made on the next working day as timely; the one-day delay is therefore condonable. Issue 3 - Impact of subsequent authoritative rulings and the limitation of processing-stage adjustments under section 143(1) Legal framework: Assessing whether a contentious deduction should have been sustained when processing under section 143(1) may raise questions of whether the adjustment was debatable at the time of processing and whether subsequent appellate/curial rulings alter the retrospective application of the law. Precedent treatment: The Tribunal acknowledged the controlling decision that delayed EPF/ESIC deposits beyond prescribed periods are not allowable and observed that, save for the limited holiday-caused one-day delay under challenge, the assessee did not press other grounds in view of that ruling. The Tribunal noted that some adjustments made at processing may be questionable if debatable, but that principle did not alter the outcome on the specific holiday question. Interpretation and reasoning: The Tribunal observed that the broader rule against post-due deposits stands and had influenced the parties' election not to press other grounds. The Tribunal confined its decision to the single, narrowly pleaded ground of holiday-related one-day delay and did not expand or overrule the established principle; it treated the issue as a non-debatable application of the General Clauses Act to the facts rather than as a controversy requiring reevaluation of processing-stage authority. Ratio vs. Obiter: Obiter - discussion that broader precedents limiting allowability of delayed deposits exist and that processing-stage adjustments should not be used for debatable items is explanatory and contextual. Ratio - the result is limited to the holiday/one-day fact pattern and is not a departure from the settled rule that generally delayed deposits are not allowable. Conclusion: Subsequent authoritative rulings that generally disallow delayed deposits do not negate the applicability of the General Clauses Act to a one-day delay caused by a holiday; the Tribunal limited its relief to that narrow factual circumstance and did not purport to apply lex prospicit retrospectively to alter the settled law beyond the facts adjudicated. Ancillary point - Other grounds and remand on profit on sale of fixed asset Legal framework and reasoning: The appeal was restricted by the assessee to the holiday-delay ground; other contested grounds were not pressed. The Tribunal noted that the addition concerning profit on sale of a fixed asset had been remanded by the appellate authority for fresh adjudication by the Assessing Officer and did not decide that issue on merits. Conclusion: Other grounds expressly not pressed were dismissed as not pressed; the remand on the fixed-asset profit remains subject to fresh adjudication and was not decided by the Tribunal in this appeal.