ITAT recalls order u/s 254(2) applying Checkmate ruling on delayed PF/ESI employee contributions Sections 2(24)(x), 36(1)(va)

ITAT Jaipur, on a Misc. Application u/s 254(2) by the Revenue, recalled its earlier order in an appeal concerning disallowance of delayed deposit of employees' contribution to PF/ESI. The Tribunal held that the later decision of the SC in Checkmate Services (LB) governs the issue, clarifying that employees' contributions constitute income u/s 2(24)(x) and are deductible u/s 36(1)(va) only if deposited within the statutory due dates under the respective enactments. As this binding precedent was not cited at the time of original hearing, the ITAT treated it as a mistake apparent from record, allowed the Misc. Application, and directed the appeal to be heard afresh.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the delay in filing the Miscellaneous Application under section 254(2) of the Income-tax Act could be condoned in view of the limitation period and the date of receipt of the Tribunal's order.

1.2 Whether there existed a "mistake apparent from the record" in the Tribunal's earlier order deleting the disallowance of employees' contribution to PF/ESI paid after the due dates under the respective Acts but before the due date of filing the return under section 139(1), warranting rectification/recall under section 254(2) in light of the subsequent Supreme Court decision on section 36(1)(va) read with section 2(24)(x) and section 43B.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Condonation of delay in filing Miscellaneous Application under section 254(2)

Legal framework (as discussed)

2.1 The Tribunal noted the limitation prescribed under section 254(2), namely that a Miscellaneous Application for rectification of mistake apparent from the record may be filed "any time within six months from the end of the month in which the order was passed". The Tribunal also considered the decision of a High Court holding that this limitation period is to be reckoned from the date of actual receipt of the Tribunal's order.

Interpretation and reasoning

2.2 The Tribunal recorded that the order sought to be rectified was passed on 18-10-2022 and received by the Principal Commissioner on 23-01-2023. The Department contended that if limitation is computed from the date of actual receipt of the order, the Miscellaneous Application filed was within time; alternatively, even if there was a delay of 37 days on a strict computation from the date of the order, such delay should be condoned.

2.3 The Tribunal considered the cited High Court decision which held that the limitation for filing a Miscellaneous Application under section 254(2) commences from the date of actual receipt of the Tribunal's order. The Tribunal found merit in this authority as relied upon by the Department.

Conclusions

2.4 The Tribunal held that, in view of the legal position emerging from the relied-upon High Court judgment, the plea of the Department regarding computation of limitation from the date of receipt was acceptable and, in any event, the delay of 37 days in filing the Miscellaneous Application deserved to be condoned. The delay was accordingly condoned and the Miscellaneous Application was held to be maintainable.

Issue 2 - Existence of "mistake apparent from the record" in allowing deduction for employees' contribution to PF/ESI and recall of order under section 254(2)

Legal framework (as discussed)

2.5 The Department, in its Miscellaneous Application, relied upon and reproduced the provisions of section 36(1)(va), section 2(24)(x), and section 43B of the Income-tax Act, and referred to CBDT Circular No. 22/2015. It further relied heavily on the Supreme Court judgment in Checkmate Services Pvt. Ltd. v. CIT-I, where the Supreme Court examined the distinction between employer's contribution and employees' contribution to welfare funds and interpreted sections 36(1)(va), 2(24)(x), and 43B.

2.6 The Supreme Court, as quoted and relied upon by the Tribunal, held that:

(i) The distinction between an employer's contribution, which is its primary liability under section 36(1)(iv), and its liability to deposit amounts received or deducted from employees under section 36(1)(va) is crucial.

(ii) Employees' contributions received by the employer constitute its income under section 2(24)(x).

(iii) Deduction of such employees' contribution under section 36(1)(va) is admissible only if the amounts are deposited in the employees' accounts in the relevant funds on or before the "due date" stipulated under the respective Acts.

(iv) The non obstante clause in section 43B does not override or dilute the specific condition in section 36(1)(va); section 43B cannot be invoked to allow deduction of employees' contribution merely because the payment was made before the due date for filing the return of income under section 139(1).

Interpretation and reasoning

2.7 In the original order dated 18-10-2022, the Tribunal had allowed the assessee's appeal by directing deletion of the adjustment made under section 143(1) in respect of employees' contribution to PF/ESI of Rs. 4,79,558/-, on the ground that the contributions, though deposited after the statutory due dates under the relevant Acts, were paid before the due date of filing the return under section 139(1).

2.8 The Tribunal recorded that at the time of hearing of the appeal on 20-09-2022, the decision of the Supreme Court in Checkmate Services Pvt. Ltd. had not yet been pronounced (it was delivered on 12-10-2022), and the Departmental Representative had therefore not invoked that authority. However, by the time the Tribunal's order was passed on 18-10-2022, the law had been clarified by the Supreme Court.

2.9 In the Miscellaneous Application proceedings, the Department contended that, in view of the Supreme Court's decision, the earlier Tribunal order allowing the deduction based on payment before the due date of filing the return, without adherence to the due dates under the respective welfare statutes, was inconsistent with the binding interpretation of sections 36(1)(va), 2(24)(x), and 43B.

2.10 The Tribunal, after hearing the Departmental Representative and considering the contents and authorities cited in the Miscellaneous Application, held that the ratio of the Supreme Court's decision in Checkmate Services Pvt. Ltd. squarely applied to the issue of disallowance of employees' contribution to PF/ESI in the present case.

2.11 The Tribunal noted specifically that, as per the Supreme Court, deduction of employees' contribution can be allowed only if such contribution is deposited by the employer on or before the due date stipulated in the respective Acts, and that section 43B does not extend that due date to the due date for filing the return.

2.12 Considering that the earlier order had allowed the assessee's claim by following a contrary approach, the Tribunal formed the view that its prior decision suffered from a mistake apparent from the record in light of the binding Supreme Court judgment which had become applicable by the time the order was passed.

Conclusions

2.13 The Tribunal held that the Supreme Court decision in Checkmate Services Pvt. Ltd. is applicable to the issue involved in the appeal regarding employees' contribution to PF/ESI, and that the Tribunal's earlier decision directing deletion of the addition under section 143(1) was inconsistent with this binding law.

2.14 Treating this inconsistency as a mistake apparent from the record amenable to rectification under section 254(2), the Tribunal recalled its order dated 18-10-2022 in respect of the said issue and directed the Registry to fix the appeal for hearing in the regular course.

2.15 The Miscellaneous Application filed by the Revenue was accordingly allowed in full.

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