2023 (6) TMI 1435 - AT - Income Tax

Supreme Court Rules: No Deductions for Late PF/ESI Deposits, Even if Paid Before Tax Filing Due Date.

Datamation Services Versus ACIT, Circle-1, Guwahati

The appeal against the NFAC's order under the Income Tax Act concerning disallowance of delayed PF/ESI contributions was dismissed. The SC's recent ... Addition u/s 36(1)(va) r.w.s. 2(24)(x)/ 43B - delayed deposit of employees’ contribution to PF/ESI i.e. after the due date as provided under the respective welfare enactments - HELD THAT:- Issue raised by the assessee has come to rest by the recent verdict of Checkmate Services Pvt. Ltd. [2022 (10) TMI 617 - SUPREME COURT] wherein it has been held that deduction u/s 36(1)(va) in respect of delayed deposit of amount collected towards employees’ contribution to PF cannot be claimed even though deposited within the due date of filing of return even when r.w.s. 43B of the Income-tax Act, 1961. The Hon’ble Supreme Court has held that by virtue of section 2(24)(x) of the Act, the amounts received or deducted by an employer u/s 36(1)(va), it retains its character as an income (albeit deemed) by virtue of section 2(24)(x), unless the condition stipulated by Explanation to section 36(1)(va) are satisfied i.e. depositing such amount received or deducted from the employee on or before the due date. There is a marked distinction between the nature and character of the two amounts – the employer’s liability is to be paid out of its income, whereas, the second is deemed an income, by definition, since it is the deduction from the employee’s income and held in trust by the employer. Conditions of section 43B prescribing the due date as the date of filing of return of income in case the employers’ contribution towards ESI/PF would not be applicable in case the employees’ contribution as provided u/s 36(1)(va) of the Act and that the due date in respect of deposit of employees’ contribution would be such as prescribed u/s 36(1)(va) - Appeal of the assessee stands dismissed. The appeal was filed against an order of the National Faceless Appeal Centre under the Income Tax Act regarding disallowance of delayed deposit of employees' contribution to PF/ESI. The issue was resolved based on a recent Supreme Court verdict, stating that deduction cannot be claimed for delayed deposits even if made before the due date of filing returns. The appeal was dismissed, and the decision was made on June 6, 2023.