2023 (8) TMI 1508 - AT - Income Tax

Delayed PF/ESIC payments not deductible under section 36(1)(va) following Supreme Court precedent in Checkmate Services

ITAT Mumbai initially allowed assessee's appeal regarding delayed PF/ESIC payment deductions under section 36(1)(va), following its earlier decision in ... Rectification u/s 254 based on subsequent decision of Supreme court - Delay in payment of P.F./E.S.I.C. u/s 36(1)(va) r/w section 2(24) Tribunal following its earlier decision rendered in Kalpesh Synthetics Pvt. Ltd. [2022 (5) TMI 461 - ITAT MUMBAI] allowed the appeal filed by the assessee. Subsequently, the Hon'ble Supreme Court in Checkmate Services Pvt. Ltd. [2022 (10) TMI 617 - SUPREME COURT] held that payment towards employee’s contribution to P.F. / E.S.I.C. after the due date prescribed under the relevant statute is not allowable as a deduction u/s 36(1)(va) HELD THAT:- We find that the Hon'ble Supreme Court in ACIT v/s Saurashtra Kutch Stock Exchange [2008 (9) TMI 11 - SUPREME COURT] held that non–consideration of the decision of the Hon'ble Jurisdictional High Court or the Hon'ble Supreme Court can be said to be a “mistake apparent from record” which can be rectified under section 254(2) - Also that the judicial decision acts retrospectively and it is not the function of the Court to pronounce a “new rule”, but to maintain and expound the “old one”. Thus, it was held that the Judges do not make a law, they only discover or find the correct law.' We are of the considered opinion that in view of the aforesaid findings of Saurashtra Kutch Stock Exchange (supra), the answer to this issue is affirmative. We find that in Lakshmi Sugar Mills Co. Ltd.[2012 (6) TMI 39 - DELHI HIGH COURT] held that where the Larger Bench of the Hon'ble Supreme Court overrules its earlier decision on which the Tribunal relied on, the said decision of the Tribunal can be rectified u/s 254(2) of the Act since the decision of the Hon'ble Supreme Court operates retrospectively. Therefore, we find merit in the present M.A. filed by the Revenue seeking recall of the Tribunal’s order on the basis of the subsequent decision of the Hon'ble Supreme Court in Checkmate Services Pvt. Ltd. (supra). Thus as employees’ contribution to P.F./E.S.I.C. was deposited after the due date prescribed under the relevant statute. Thus, respectfully following the decision of Checkmate Services Pvt. Ltd. (supra), the grounds raised by the assessee in its appeal are dismissed. Issues:1. Recall of order under section 254(2) of the Income Tax Act, 1961 based on subsequent Supreme Court decision regarding disallowance of delayed payment towards employee contributions to Provident Fund (P.F) / Employees State Insurance Corporation (E.S.I.C.).2. Consideration of subsequent Supreme Court decision as a basis for rectifying Tribunal's order under section 254(2) of the Act.Detailed Analysis:1. The Appellate Tribunal ITAT Mumbai considered a Miscellaneous Application filed by the Revenue seeking a recall of the order dated 03/08/2022, passed under section 254(1) of the Income Tax Act, 1961. The issue revolved around the disallowance on account of alleged delay in payment of P.F./E.S.I.C. under section 36(1)(va) r/w section 2(24) of the Act. The Tribunal had allowed the appeal filed by the assessee based on a previous decision. However, the Revenue sought a recall based on a subsequent Supreme Court decision in Checkmate Services Pvt. Ltd. v/s CIT, [2022] 448 ITR 518 (SC), which upheld the disallowance for delayed payments. The Tribunal considered the arguments from both sides and analyzed the impact of the Supreme Court decision on the case.2. The Tribunal referred to the principle that a judicial decision acts retrospectively, as established by the Hon'ble Supreme Court in ACIT v/s Saurashtra Kutch Stock Exchange, [2008] 305 ITR 227 (SC). The Tribunal highlighted that non-consideration of a decision by the Jurisdictional High Court or the Supreme Court can be rectified under section 254(2) of the Act. The Tribunal emphasized that judges do not make law but discover the correct law, and subsequent decisions clarify the legal position. Citing the case of Saurashtra Kutch Stock Exchange, the Tribunal affirmed that a subsequent Supreme Court decision can be a basis for rectifying an order under section 254(2) of the Act. The Tribunal distinguished previous decisions cited by the assessee and granted the recall of the order based on the subsequent Supreme Court decision in Checkmate Services Pvt. Ltd.3. Subsequently, the Tribunal proceeded to consider the appeal by the assessee in ITA no.1999/Mum./2021 for the assessment year 2019-20. The Tribunal noted the Supreme Court's decision in Checkmate Services Pvt. Ltd., which clarified that delayed payments towards employee contributions to P.F. and E.S.I.C. are not allowable as deductions under section 36(1)(va) of the Act. The Tribunal dismissed the grounds raised by the assessee in the appeal, as the record indicated that the contributions were deposited after the prescribed due date. Following the Supreme Court decision, the Tribunal allowed the Miscellaneous Application filed by the Revenue and dismissed the appeal by the assessee.In conclusion, the Tribunal recalled the initial order based on the subsequent Supreme Court decision and dismissed the appeal by the assessee in light of the clarified legal position regarding delayed payments towards employee contributions.