2024 (1) TMI 51 - AT - Income Tax

Assessee loses PF/ESIC late payment challenge under section 143(1) following Checkmate Services precedent on employee contributions

ITAT Ahmedabad ruled against the assessee on PF/ESIC late payment disallowance under section 143(1). Following SC precedent in Checkmate Services, the ... Disallowance of late payment of PF & ESIC made u/s. 143(1) - HELD THAT:- Issue decided following Checkmate Services (P.) Ltd. [2022 (10) TMI 617 - SUPREME COURT] held that non obstante clause under section 43B could not apply in case of employee's contribution which were deducted from their income and was not part of assessee-employer's income and, 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. Decided against assessee. Argument of the assessee namely “due– date” for payment of employees’ contribution to PF/ESI has to be reckoned from the “month of actual payment of salary” and not from the “month of salary in which becomes payable” - this issue is also considered by the Hon’ble High Court of Gujarat in M/s. Checkmate Facility And Electronic Solutions Pvt. Ltd. Vs. DCIT [2018 (10) TMI 994 - GUJARAT HIGH COURT] as provision thus requires an employer before paying the employee his wages to deduct employee's contribution along with the employer's own contribution as fixed by the Government. It is further required that he shall within fifteen days of the close of every month pay the same to the fund such contribution and administrative charges. In terms of this provision thus, after deducting the employee's contribution towards the funds, the same has to be deposited with the Government within fifteen days of the close of every month. Reference to fifteen days of the close of the month must be in relation to the month during which the payment of wages is to be made and corresponding liability to deduct employee's contribution to the fund arises. The expression 'within fifteen days of the close of every month' therefore must be interpreted as having reference to the close of the month, for which, the wages are required to be paid with corresponding duty to deduct employee's contribution and to deposit the same in the fund. Appellant is therefore not correct in contending that if such wages are paid in the following month, the liability to deposit the employee's contribution to the fund gets differed by another month. Adjustments / additions u/s 143(1) - CPC made disallowed without considering the objections / reply filed by the assessee - Empty formality - HELD THAT:- It is highly expected the CPC on receipt of the objection filed by the assessee, consider the same in accordance with law and then proceed with as per the provisions u/s. 143(1) or to proceed with regular scrutiny assessment u/s. 143(3) by issuing notice u/s. 143(2) of the Act. Further it is noted that the assessee filed additional documents invoking Rule 46A of the I.T. Rules, by filing Form 26A before NFAC, the same was also not adjudicated by any NFAC in its order. In our considered view, Ld. NFAC ought to have considered the above additional documents and adjudicated the case in accordance with law. Since it is only a proceeding u/s. 143(1) and not a scrutiny assessment where assessee is expected to file all necessary documents along with the Return of Income. Thus in our considered opinion, Ld. NFAC failed to entertain the additional documents filed by the assessee, we therefore set aside the issue to file of JAO and the Ground No.2 raised by the assessee is partly allowed. Issues Involved:1. Disallowance under Section 36(1)(va) for late payment of PF and ESIC.2. Disallowance under Section 40(a)(ia) for non-deduction of tax.3. Consideration of additional evidence under Rule 46A.4. Charging of interest under Section 234A/B/C/D.5. General errors in facts and law.Summary of Judgment:Issue 1: Disallowance under Section 36(1)(va) for Late Payment of PF and ESICThe Tribunal noted that the Central Processing Centre (CPC) issued a communication to the assessee regarding the disallowance of Rs. 1,75,24,856/- for late payment of PF and ESIC. The assessee argued that the payments were made before the due date for filing the return of income, citing the Supreme Court case of Commissioner of Income Tax vs. Vinay Cement Ltd. However, the Tribunal referenced the recent Supreme Court judgment in Checkmate Services (P.) Ltd., which clarified that employee contributions must be deposited on or before the due date specified in the respective Acts. The Tribunal upheld the disallowance, stating that the CPC's action was valid under Section 143(1)(a)(ii) as the incorrect claim was apparent from the return information.Issue 2: Disallowance under Section 40(a)(ia) for Non-Deduction of TaxThe assessee contended that the payees had shown the relevant income in their tax returns and paid taxes, thus fulfilling the conditions under the second proviso to Section 40(a)(ia). The Tribunal noted that the assessee had filed additional documents, including Form 26A, to support this claim. However, the National Faceless Appeal Centre (NFAC) did not admit these additional documents. The Tribunal set aside this issue to the Jurisdiction Assessing Officer (JAO) for verification of Form 26A and to allow the claim in accordance with the law.Issue 3: Consideration of Additional Evidence under Rule 46AThe Tribunal observed that the NFAC failed to consider the additional documents filed by the assessee under Rule 46A. The Tribunal emphasized the importance of considering these documents, especially since the proceedings were under Section 143(1) and not a scrutiny assessment. The Tribunal set aside the issue to the JAO for reconsideration, ensuring the principles of natural justice were upheld.Issue 4: Charging of Interest under Section 234A/B/C/DThe Tribunal did not specifically address this issue in detail, implying that it was consequential to the main issues discussed.Issue 5: General Errors in Facts and LawThe Tribunal noted various procedural lapses, including the CPC's failure to consider the assessee's objections and the NFAC's neglect in adjudicating additional documents. The Tribunal stressed the need for these authorities to consider objections and additional evidence in accordance with the law.Conclusion:The appeal was partly allowed for statistical purposes, with specific directions to the JAO to verify additional evidence and reassess the disallowances accordingly. The Tribunal upheld the CPC's disallowance under Section 36(1)(va) but remanded the issue under Section 40(a)(ia) for further verification.