2023 (10) TMI 1519 - AT - Income Tax

Employee PF/ESI contributions deposited after statutory due dates cannot be claimed as deductions under section 36(1)(va)

Rakesh Janghu Versus Dy. Commissioner of Income Tax Circle-28 (1), New Delhi and Dy. Commissioner of Income Tax Circle-28 (1), New Delhi Versus Rakesh Janghu

ITAT Delhi upheld disallowance under section 36(1)(va) for late deposit of employee PF/ESI contributions. Following Supreme Court precedent in Checkmate ... Disallowance u/s 36(1)(va) - late deposit of employees contribution towards PF/ESI under the head income from business - HELD THAT:- As decided in Checkmate Services [2022 (10) TMI 617 - SUPREME COURT] categorically held that the Employees Contribution deposited after respective due date mentioned in the PF Act cannot be allowed as deduction u/s 36(1)(va) of the Act. Actual ‘due date prescribed’ - It is the case of the Assessees that the salary/remuneration payment to staff for the month was paid in subsequent months preferably in the first week of the next month. For example, the salary for the month of September, 2023 will be paid in the first week of October, 2023, thus, the Employer is required to deposit the PF/ESI Contribution within 15 days of the close of every month. As per the assessee, the due date has to be calculated within 15 days from the close of the month in which ‘payment is made to the employee’. But according to the Revenue, the Contribution has to be deposited within 15 days from the close of the month for which salary/wages of the employee is due. As decided in Master Polishers [2023 (4) TMI 1224 - ITAT MUMBAI] deduction us 36(1)(va) of the IT Act is admissible only of the amount so received from employees for PF/ESIC is credited in specified account within the due date as per the relevant Statute. In the instant appeal, it is an admitted position of the appellant that there was delay in crediting the contribution so collected in the specified account within the due date as per the relevant Statute. Considering the above facts and circumstances and also the decision of Master Polishers (supra), we restore the issue to the file of the A.O. to decide the same afresh keeping in view the directions of case supra along with the Tax Audit Report filed by the Assessee and the return of income filed u/s 44AB of the Act. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment include: Whether the disallowance of employees' contributions to PF/ESI due to late deposit is justified under Section 36(1)(va) of the Income Tax Act. Whether the amendments to Section 36(1)(va) and Section 43B, as per the Finance Act, 2021, apply retrospectively. The jurisdiction and legality of adjustments made under Section 143(1) of the Income Tax Act by the Assessing Officer (AO). The determination of the 'due date' for depositing employees' contributions to PF/ESI under the relevant statutes.ISSUE-WISE DETAILED ANALYSISDisallowance of Employees' Contributions to PF/ESI Relevant Legal Framework and Precedents: The judgment primarily revolves around Section 36(1)(va) and Section 43B of the Income Tax Act, which govern the deductibility of employees' contributions to PF/ESI. The Supreme Court's decision in Checkmate Services Pvt. Ltd. vs. CIT-1 is pivotal, establishing that contributions made beyond the due date prescribed under the PF Act are not deductible. Court's Interpretation and Reasoning: The Tribunal upheld the Supreme Court's interpretation that contributions deposited after the due date are not allowable as deductions. The Tribunal emphasized adherence to the statutory timeline for depositing contributions. Key Evidence and Findings: The Tribunal noted the assessee's acknowledgment of late deposits and the reliance on the Supreme Court's ruling in Checkmate Services Pvt. Ltd. The Tribunal also considered various ITAT decisions supporting the assessee's contention regarding the due date for deposits. Application of Law to Facts: The Tribunal applied the Supreme Court's decision to the facts, affirming that contributions deposited after the due date are disallowed under Section 36(1)(va). Treatment of Competing Arguments: The assessee argued that the due date should be calculated from the month of salary payment, not the month the salary was due. The Tribunal considered this argument but ultimately relied on the Supreme Court's decision. Conclusions: The Tribunal concluded that the disallowance of contributions deposited after the due date is justified, aligning with the Supreme Court's ruling.Retrospective Application of Amendments Relevant Legal Framework and Precedents: The Finance Act, 2021 amended Sections 36(1)(va) and 43B, clarifying the treatment of late contributions. The Tribunal examined whether these amendments apply retrospectively. Court's Interpretation and Reasoning: The Tribunal did not explicitly address the retrospective application, focusing instead on the Supreme Court's interpretation of existing provisions. Conclusions: The Tribunal implicitly upheld the non-retrospective application by relying on the Supreme Court's interpretation of the pre-amendment provisions.Jurisdiction and Legality of Adjustments under Section 143(1) Relevant Legal Framework and Precedents: Section 143(1) allows for prima facie adjustments during return processing. The Tribunal examined whether the AO exceeded this scope in disallowing contributions. Court's Interpretation and Reasoning: The Tribunal found that the AO's adjustments were within the scope of Section 143(1), as they aligned with the Supreme Court's interpretation of the law. Conclusions: The Tribunal concluded that the AO's actions were lawful and within jurisdiction.Determination of 'Due Date' for Deposits Relevant Legal Framework and Precedents: The Tribunal considered the statutory provisions and the Supreme Court's decision in Checkmate Services Pvt. Ltd. Court's Interpretation and Reasoning: The Tribunal acknowledged the ambiguity in determining the 'due date' and restored the issue to the AO for verification with relevant authorities. Conclusions: The Tribunal directed the AO to verify the 'due date' with PF and ESI authorities, allowing the assessee an opportunity to present evidence.SIGNIFICANT HOLDINGS Preserve Verbatim Quotes of Crucial Legal Reasoning: 'The Hon'ble Supreme Court in the case of Checkmate Services (supra) categorically held that the Employees Contribution deposited after respective due date mentioned in the PF Act cannot be allowed as deduction u/s 36(1)(va) of the Act.' Core Principles Established: The Tribunal reaffirmed the principle that employees' contributions deposited after the due date are not deductible, as per the Supreme Court's ruling. Final Determinations on Each Issue: The Tribunal upheld the disallowance of late contributions, directed the AO to verify the 'due date' with authorities, and allowed the appeals for statistical purposes, providing the assessee an opportunity to present further evidence.