2023 (2) TMI 1439 - AT - Income Tax

Delayed deposit of employees' PF/ESI contributions beyond welfare-law due dates, rectified as record mistake u/s254(2)

Non-consideration of binding SC law constitutes a 'mistake apparent from the record' rectifiable under s. 254(2), applying the principle in SC precedent ... Rectification of mistake - disallowance on delayed payment of employee’s contribution to ESI and PF made by the assessee beyond the due date as prescribed under the relevant law - reliability of law as conclusively settled by the Supreme Court in Checkmate Services Pvt. Ltd. [2022 (10) TMI 617 - SUPREME COURT (LB)] - HELD THAT:- Hon’ble Supreme Court in the case of CIT Vs. Saurashtra Kutch Stock Exchange case [2008 (9) TMI 11 - SUPREME COURT] has held that non-consideration of the decision of the jurisdictional high court/Supreme Court constitutes mistake apparent from record and is rectifiable within the meaning of section 254(2) of the Act. Article 141 of the Constitution of India provides that the law declared by Supreme Court shall be binding on all courts within the territory of India. The law laid down by Supreme Court operates retrospectively and is deemed to the law as it has always been unless, the Supreme Court, says that its ruling will only operate prospectively. There is a mistake apparent on record in view of the decision of the Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd. (supra) though rendered subsequent to the order passed by the Tribunal and has to be rectified by holding that the disallowance made by the revenue authorities u/s. 36(1)(va) of the Act was justified. The orders of the Tribunal will stand modified/rectified accordingly. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether, under section 254(2) of the Income Tax Act, the Tribunal can rectify its earlier order allowing deduction of delayed employees' contribution to PF/ESI, in light of the subsequent Supreme Court judgment clarifying the law on section 36(1)(va) and section 43B. 1.2 Whether non-application of the law as declared by the Supreme Court regarding disallowance of delayed employees' contribution to PF/ESI constitutes a 'mistake apparent from the record' rectifiable under section 254(2). 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 & 2: Rectification under section 254(2) in light of subsequent Supreme Court judgment; nature of 'mistake apparent from the record' regarding employees' PF/ESI contribution Legal framework 2.1 The Tribunal referred to section 254(2) of the Income Tax Act, which permits rectification of 'mistake apparent from the record'. 2.2 The Tribunal relied on Supreme Court decisions explaining the scope of rectification powers under section 254(2), particularly that non-consideration of a jurisdictional High Court/Supreme Court decision constitutes a mistake apparent from the record and is rectifiable. 2.3 The Tribunal noted Article 141 of the Constitution, under which law declared by the Supreme Court is binding on all courts and operates retrospectively unless expressly made prospective. Interpretation and reasoning 2.4 The original Tribunal order had held that disallowance under section 36(1)(va) for delayed payment of employees' contribution to PF/ESI was not justified if such contributions were paid before the due date for filing the return of income under section 139(1). 2.5 The Tribunal noted that the Supreme Court, in a subsequent judgment, held that section 36(1)(va) and section 43B(b) operate on different parameters: employees' contribution must be paid within due dates prescribed under the respective PF/ESI laws, and failure to do so permanently negates the employer's claim for deduction under section 36(1)(va); whereas delay in employer's contribution only defers deduction under section 43B to the year of actual payment. 2.6 Based on this Supreme Court declaration, the Tribunal held that the disallowance made by the Revenue in respect of delayed employees' contribution to PF/ESI was fully justified, contrary to its earlier view. 2.7 Relying on the Supreme Court ruling that non-consideration of binding precedent is a mistake apparent from the record, and on the principle that rectification power aims to prevent prejudice to any party due to Tribunal's mistake, error, or omission, the Tribunal held that failure to apply the law as declared by the Supreme Court constitutes a rectifiable mistake. 2.8 The Tribunal emphasized that since Supreme Court law is declaratory and operates retrospectively (unless specifically limited prospectively), the subsequent decision must be treated as the law that always governed section 36(1)(va) and section 43B. Conclusions 2.9 The Tribunal held that, in light of the Supreme Court decision on the treatment of delayed employees' PF/ESI contribution, its earlier order allowing deduction based on payment before the due date of filing the return contained a mistake apparent from the record. 2.10 The Tribunal exercised powers under section 254(2) to rectify and modify its earlier order by holding that the disallowance made by the Revenue under section 36(1)(va) was justified. 2.11 The miscellaneous petitions filed by the Revenue were allowed, and the assessee's appeals stood effectively dismissed to the extent of the rectified issue.