2024 (1) TMI 1451 - AT - Income Tax

Employee PF and ESIC contributions must be deposited within statutory 15-day deadline despite payment before return filing

M/s. The Kothari Wheels Versus DCIT, CPC, Bangalore

M/s. The Kothari Wheels Versus DCIT, CPC, Bangalore - TMI ISSUES PRESENTED and CONSIDEREDThe core legal issue considered in this judgment is whether the disallowance of Rs.93,37,905/- made by the Centralized Processing Center (CPC), Bengaluru under Section 36(1)(va) of the Income Tax Act, 1961, concerning the late deposit of the employees' share of Provident Fund (PF) and Employees' State Insurance Corporation (ESIC) contributions, was justified. The Tribunal also examined whether the disallowance was correctly upheld by the Commissioner of Income Tax (Appeals) [CIT(A)] and whether the CPC's actions were within the permissible scope of Section 143(1) of the Act.ISSUE-WISE DETAILED ANALYSISRelevant Legal Framework and PrecedentsThe legal framework primarily involves Section 36(1)(va) and Section 43B of the Income Tax Act, 1961. Section 36(1)(va) mandates that the employees' share of contributions to welfare funds must be deposited by the employer before the due date specified under the respective Acts to qualify for a deduction. Section 43B provides that certain deductions, including employer contributions to welfare funds, are permissible if paid before the due date for filing the return of income under Section 139(1).The judgment references a recent decision by the Supreme Court in Checkmate Services P. Ltd. & Ors. vs. CIT & Ors., which clarified that the due date under the respective Acts, not the due date for filing the return, is relevant for the employees' share of contributions.Court's Interpretation and ReasoningThe Tribunal interpreted that the disallowance under Section 36(1)(va) is justified if the employees' contributions are not deposited by the due date under the respective Acts, regardless of whether they were deposited before the filing of the return. The Tribunal emphasized that the Supreme Court's decision in Checkmate Services is declaratory and applies retrospectively, affecting all pending cases.Key Evidence and FindingsThe Tribunal noted that the audit report clearly indicated the due dates and actual dates of payment of the employees' contributions, demonstrating that the payments were made after the due dates specified under the respective Acts. This evidence was crucial in supporting the disallowance under Section 36(1)(va).Application of Law to FactsThe Tribunal applied the Supreme Court's interpretation to the facts of the case, concluding that the late deposit of employees' contributions warranted disallowance under Section 36(1)(va). The Tribunal rejected the argument that Section 43B could override the requirement of timely deposit under the respective Acts.Treatment of Competing ArgumentsThe appellant argued that the disallowance should not be made under Section 143(1) as it was not apparent from the return of income. The Tribunal examined the provisions of Section 143(1) and determined that the audit report's clear indication of late payment justified the disallowance as an apparent incorrect claim under Section 143(1)(a)(iv).The appellant also contended that no deduction was claimed in the Profit and Loss account for the employees' contributions. The Tribunal dismissed this argument, explaining that the gross salary deduction implicitly included the employees' contributions.ConclusionsThe Tribunal concluded that the disallowance under Section 36(1)(va) was justified and that the CPC acted within its authority under Section 143(1) to make such disallowance based on the audit report's indications. The appeal was dismissed, affirming the CIT(A)'s decision.SIGNIFICANT HOLDINGSThe Tribunal upheld the principle that the employees' share of contributions must be deposited by the due date specified under the respective Acts to qualify for a deduction under Section 36(1)(va). The Tribunal emphasized that the Supreme Court's decision in Checkmate Services applies retrospectively and overrides any contrary High Court decisions.Core Principles EstablishedThe judgment reinforces the distinction between the treatment of employees' and employers' contributions to welfare funds, emphasizing the necessity of adhering to statutory due dates for the former. The Tribunal clarified that adjustments under Section 143(1) can be made based on clear indications in the audit report, even if the return itself does not explicitly show the disallowance.Final Determinations on Each IssueThe Tribunal determined that the CPC's disallowance under Section 36(1)(va) was justified and that the CIT(A) correctly upheld the disallowance. The appeal was dismissed, and the Tribunal affirmed the adjustment made under Section 143(1) based on the audit report's indications of late payment.