2025 (4) TMI 1733 - AT - Income Tax

Employee PF/ESI delay disallowed per Checkmate; tax credit recomputation remanded; 115BAA rectification under section 154 accepted

The ITAT Delhi dismissed the assessee's primary ground challenging disallowance of employees' ESI/PF contributions, holding that, in line with the SC ... Disallowance of ESI/PF contribution pertaining to employees - Effect of the 'due date' for deposit - credit of prepaid taxes - rectification claiming the benefit of section 115BAA - HELD THAT:- Suffice to say, it has already come on record and fairly conceded at the assessee’s behest that it’s instant first and foremost substantive ground hardly carries any merit in principle as per Checkmate Services Pvt Ltd [2022 (10) TMI 617 - SUPREME COURT (LB)] settling the issue in the department’s favour that such a contribution ought to be deposited in the prescribed account on or before “due” date in the corresponding statute than that of filing return of income under section 139(1) of the Act. That being the case, we find no merit in the assessee’s instant substantive ground in principle. Both the learned representatives are very fair that the same requires Assessing Officer’s factual verification and computation than our second appellate adjudication. We accordingly restore the assessee’s instant second substantive ground back to the Assessing Officer in very terms. Learned counsel lastly contends that the assessee’s section 154 rectification claiming the benefit of section 115BAA already stand accepted by the departmental authorities. We accordingly reject the assessee’s instant last substantive ground as rendered infructuous. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Disallowance of employees' contribution to ESI/PF on account of delayed deposit beyond the 'due date' under the relevant welfare statutes in proceedings under section 143(1) of the Act. 1.2 Determination of the 'due date' for deposit of employees' contribution to ESI/PF where there is a time lag between the month to which wages relate and the month in which salary is actually disbursed. 1.3 Entitlement to credit of prepaid taxes and the need for factual verification of such claim. 1.4 Effect of separate rectification proceedings under section 154 granting benefit of section 115BAA on the maintainability of the related ground in appeal. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 & 2: Disallowance of employees' contribution to ESI/PF and determination of 'due date' Legal framework (as discussed): The Court proceeded on the basis of the law declared in the decision holding that employees' contribution to welfare funds must be deposited on or before the 'due date' prescribed under the respective statutes, and not merely by the due date for filing return of income under section 139(1) of the Act. Clause 38 of the Employees' Provident Fund Scheme, 1952 prescribes the time limit of 15 days from the close of the month concerned for making payment of contribution, with an additional grace period of 5 days. Reliance was placed on a Tribunal decision interpreting 'month' in Clause 38 as the month during which wages/salary is actually disbursed. Interpretation and reasoning: The Court noted that, in principle, the controversy regarding allowability of employees' contribution to ESI/PF stands settled against the assessee, to the effect that such contribution must be deposited within the 'due date' under the relevant welfare enactments. The assessee, however, contended that the 'due date' should be computed with reference to the month of actual disbursement of salary, not the month to which salary relates, relying on the reasoning that the expression 'month' in Clause 38 should be taken as the month in which the salary is actually paid. It was urged that once deduction of employees' contribution occurs contemporaneously with salary disbursement, the employer should be allowed 15 days (plus the permissible grace period) from the close of that month to deposit the contribution. The Tribunal accepted that this interpretative plea, based on the cited Tribunal decision, warranted factual verification of the actual dates of salary disbursement and corresponding deposit of contributions. Conclusions: The Court held that, as a matter of principle, employees' contribution to ESI/PF is allowable only if deposited within the 'due date' prescribed under the relevant statute, and the assessee's challenge to this legal position fails. However, the assessee's contention that the 'due date' must be reckoned from the month of actual disbursement of salary, for purposes of computing the period of 15 days (plus grace period), was accepted to the limited extent that the Assessing Officer must examine whether the payments were made within such period from the end of the month in which salary was actually disbursed. The disallowance was therefore partly accepted for statistical purposes, with a direction to recompute the disallowable amount, if any, on this basis. Issue 3: Credit of prepaid taxes Interpretation and reasoning: It was jointly acknowledged that the determination of correct credit for prepaid taxes is a matter of factual verification and arithmetical computation, not requiring adjudication on any substantial question of law by the appellate forum. Conclusions: The Court restored the issue of credit of prepaid taxes to the Assessing Officer for verification and proper computation, directing that appropriate credit be allowed in accordance with facts and law. Issue 4: Effect of rectification under section 154 granting benefit of section 115BAA Interpretation and reasoning: Learned counsel submitted that separate rectification proceedings under section 154 had already granted the assessee the benefit of section 115BAA. In view of this admitted position, there remained no live dispute on this aspect for appellate determination. Conclusions: The Court held that the ground relating to the benefit of section 115BAA had become infructuous owing to the rectification order already granting such relief, and accordingly rejected this ground as infructuous.