2022 (10) TMI 1249 - AT - Income Tax

Employee PF/ESI contributions must be paid by welfare legislation due dates, not IT return filing deadline under section 43B for deduction eligibility

Legacy Global Projects Pvt. Ltd Versus. The Assistant Director of Income Tax, CPC, Bengaluru.

The ITAT Bangalore dismissed the assessee's appeal regarding delayed employee PF/ESI contributions, following the SC decision in Checkmate Services that ... Delay in payment of Employee contribution to Provident Fund - AR submitted that the payment of employee contribution to PF & ESI though belated, was paid before the due date of filing the return of income u/s 139(1) of the Act and therefore allowable u/s. 43B - HELD THAT:- We notice that the Hon’ble Supreme Court in the case of Checkmate Services [2022 (10) TMI 617 - SUPREME COURT] has considered the issue of whether the employees contribution paid before due date for filing the return of income u/s.139(1) whether otherwise allowable u/s.43B, putting to rest the contradicting decisions of various High Court. In view of the above decision of the Hon’ble Supreme Court, we hold that the employees contribution to PF and ESI should be remitted before the due date as per explanation to section 36(1)(va) i.e. on or before the due date under the relevant employee welfare legislation like PF Act, ESI Act etc., for the same to be otherwise allowable u/s.43B. We therefore see no reason to interfere with the order of the CIT(Appeals). The grounds taken by the assessee on this issue is dismissed. Disallowance of Club fees - AO confirmed the disallowance while completing the assessment u/s.143(1) since the assessee did not file any response - CIT(Appeals) confirmed the same on the same ground that the assessee did not file any details - HELD THAT:- We notice that the lower authorities have not verified the details of club expenditure based on documents /details. The contention of the assessee that these expenditure are incurred wholly and exclusively for the purpose of business need to be factually verified before the deciding the allowability u/s.37 of the Act - we remit the issue back to the AO, to examine the nature of club expenditure i.e., whether the same is incurred for the purpose of business and decide the allowability in accordance with law, after giving reasonable opportunity of being heard to the assessee. The assessee is directed to submit the required details and cooperate with the proceedings. This ground is allowed for statistical purposes. Issues Involved:1. Disallowance of delayed remittance of Employee contribution to Provident Fund.2. Disallowance of Club fees.Issue 1: Disallowance of delayed remittance of Employee contribution to Provident Fund:The appeal involved the question of whether the delayed remittance of Employee contribution to Provident Fund, though paid before the due date of filing the return of income, is allowable under section 43B of the Income Tax Act. The Appellate Tribunal referred to the decision of the Hon'ble Supreme Court in the case of Checkmate Services (P.) Ltd. Vs CIT-1, [2022] 143 taxmann.com 178 (SC), which clarified that employees' contributions to PF must be deposited within the due date specified by relevant employee welfare legislation. The Tribunal held that the employees' contribution to PF and ESI should be remitted before the due date as per the explanation to section 36(1)(va) for it to be allowable under section 43B. Consequently, the Tribunal dismissed the grounds taken by the assessee on this issue.Issue 2: Disallowance of Club fees:The second issue pertained to the disallowance of Club fees amounting to Rs. 9,68,075 as disclosed in the tax audit report. The Assessing Officer disallowed the amount since the assessee did not file any response, which was confirmed by the CIT(Appeals). The Appellate Tribunal noted that the lower authorities did not examine the factual details of the expenses but relied solely on the tax audit report. The Tribunal directed the issue to be remitted back to the Assessing Officer for factual verification of the nature of club expenditure to determine if it was incurred for business purposes. The Tribunal instructed the assessee to submit the required details and cooperate with the proceedings. Consequently, the Tribunal allowed this ground for statistical purposes.In conclusion, the appeal by the assessee was partly allowed by the Appellate Tribunal, with the decision pronounced on October 27, 2022.