Order recalled, rectification u/s 254(2) on delayed employees' PF/ESI deduction u/ss 36(1)(va), 154 claimed earlier

ITAT Pune allowed the Revenue's miscellaneous application u/s 254(2) seeking rectification of mistake u/s 154 in respect of deduction claimed u/s 36(1)(va) for employees' PF/ESI contributions deposited beyond the due dates under the respective Acts but before the due date u/s 139(1). Relying on SC rulings in Saurashtra Kutch Stock Exchange Ltd. and Checkmate Services (P) Ltd., the Tribunal held that its earlier order allowing such deduction constituted a mistake apparent from record. Consequently, the earlier appeal order for AY 2019-20 was recalled for fresh adjudication.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the limitation period for filing a miscellaneous application under section 254(2) commences from the date of the Tribunal's order or from the date of receipt of that order by the applicant.

1.2 Whether non-application of the law subsequently clarified by the Supreme Court regarding disallowance under section 36(1)(va) in respect of employees' contribution to PF and ESI constitutes a "mistake apparent from the record" rectifiable under section 254(2).

1.3 Whether the Tribunal's earlier order allowing deduction under section 36(1)(va) on employees' contribution to PF and ESI paid after the due dates under the respective Acts but before the due date under section 139(1) required recall in light of the Supreme Court's ruling in Checkmate Services P. Ltd.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Commencement of limitation for miscellaneous application under section 254(2)

Legal framework (as discussed)

2.1 The Court examined the limitation for filing a miscellaneous application under section 254(2), with reference to whether it runs from the date of the Tribunal's order or from the date of receipt of the order by the concerned party.

Interpretation and reasoning

2.2 The Court noted that the impugned order was passed on 27.09.2022 and the miscellaneous application was filed on 13.09.2023, which prima facie appeared time-barred if limitation was reckoned from the date of the order.

2.3 The Departmental Representative contended that limitation begins from the date of receipt of the Tribunal's order, and that the order, though passed on 27.09.2022, was received by the Department on 23.05.2023, rendering the application filed on 13.09.2023 within time.

2.4 The Court accepted the position that limitation for filing a miscellaneous application runs from the date of receipt of the Tribunal's order and not from the date of the order itself.

Conclusions

2.5 The miscellaneous application filed by the Revenue on 13.09.2023, reckoned from the date of receipt of the order on 23.05.2023, was held to be within the prescribed time limit and maintainable, and was accordingly admitted.

Issue 2: Rectifiability under section 254(2) for non-application of Supreme Court law on section 36(1)(va)

Legal framework (as discussed)

2.6 The Court considered section 254(2) regarding rectification of "mistake apparent from the record", in the context of subsequent or existing Supreme Court and jurisdictional High Court decisions.

2.7 The Court relied on the Supreme Court's decision in ACIT v. Saurashtra Kutch Stock Exchange Ltd., 305 ITR 227 (SC), particularly paragraphs 40 to 43, holding that non-consideration of a decision of the jurisdictional High Court or the Supreme Court amounts to a "mistake apparent from the record" rectifiable under section 254(2), and that judicial decisions act retrospectively.

Interpretation and reasoning

2.8 The Court observed that in the impugned order dated 27.09.2022, the Tribunal had allowed deduction under section 36(1)(va) on the basis that employees' contribution to PF and ESI was deposited prior to the due date under section 139(1).

2.9 The Court noted that the Supreme Court in Checkmate Services P. Ltd. & Ors. v. CIT & Ors., 448 ITR 518 (SC), had subsequently held that deduction under section 36(1)(va) is allowable only if the employees' share in the relevant funds is deposited by the employer on or before the due date stipulated under the respective Acts, thereby denying deduction where deposit is after such due dates, irrespective of payment before the due date under section 139(1).

2.10 Applying Saurashtra Kutch Stock Exchange Ltd., the Court emphasized that a judicial decision clarifies the correct legal position with retrospective effect; hence, non-application of the law as declared by the Supreme Court constitutes a mistake apparent from the record.

2.11 The Court therefore held that the Tribunal's earlier view allowing deduction under section 36(1)(va) merely because payment was made before the due date under section 139(1) stood rendered erroneous in light of Checkmate Services P. Ltd., and such error was rectifiable under section 254(2).

Conclusions

2.12 Non-application of the Supreme Court's ratio in Checkmate Services P. Ltd. on section 36(1)(va), read with the principle laid down in Saurashtra Kutch Stock Exchange Ltd., was held to be a "mistake apparent from the record" amenable to rectification under section 254(2).

Issue 3: Validity of deduction under section 36(1)(va) for delayed employees' PF/ESI contributions and recall of appeal

Interpretation and reasoning

2.13 The Court noted that in the original order, deduction under section 36(1)(va) had been allowed on the premise that deposits of employees' share of PF and ESI, though made after the due dates under the respective Acts, were made before the due date of filing the return under section 139(1).

2.14 In view of the Supreme Court's decision in Checkmate Services P. Ltd., which mandates that employees' contribution must be deposited within the due dates under the respective Acts to qualify for deduction under section 36(1)(va), the Tribunal's earlier reasoning was inconsistent with the law as declared by the Supreme Court.

2.15 Given that the later Supreme Court decision has retrospective effect, the Tribunal's earlier order allowing such deduction was considered erroneous and required rectification.

Conclusions

2.16 The Court held that the Tribunal had committed a mistake in allowing deduction under section 36(1)(va) for employees' PF and ESI contributions deposited beyond the due dates under the respective Acts, and that, in light of Checkmate Services P. Ltd., it was a fit case to recall the appeal.

2.17 The appeal in ITA No. 552/PUN/2021 for assessment year 2019-20 was directed to be recalled and fixed by the Registry in the regular course of hearing.

2.18 The miscellaneous application filed by the Revenue was allowed on these terms.

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