2023 (5) TMI 1470 - AT - Income Tax

Delayed employee PF/ESI contributions paid after welfare-law due dates-Checkmate rule applied; disallowance upheld via s.254(2) rectification.

Non-consideration of binding SC precedent constitutes a 'mistake apparent from the record' rectifiable under s.254(2), applying the principle in SC's ... 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, in view of the subsequent judgment of the Supreme Court on allowability of delayed payment of employees' contribution to PF/ESI, there existed a 'mistake apparent from the record' in the Tribunal's earlier order within the meaning of section 254(2) of the Income-tax Act, 1961. 1.2 Whether, applying the law as declared by the Supreme Court, disallowance under section 36(1)(va) in respect of employees' contribution to PF/ESI paid after the due dates under the respective welfare statutes, but before the due date of filing the return under section 139(1), is justified. 2. ISSUE-WISE DETAILED ANALYSIS 2.1 Rectification under section 254(2) on account of subsequent Supreme Court judgment Legal framework (as discussed) 2.1.1 The Tribunal referred to section 254(2) of the Act dealing with 'rectification of mistake from the record' and to the jurisprudence laid down by the Supreme Court in CIT v. Saurashtra Kutch Stock Exchange and Honda Siel Power Products Ltd. v. CIT regarding the scope of rectification powers. 2.1.2 The Tribunal also referred to Article 141 of the Constitution of India, which mandates that the law declared by the Supreme Court is binding on all courts and operates retrospectively unless expressly made prospective. Interpretation and reasoning 2.1.3 The Tribunal noted that its original decision had followed the jurisdictional High Court ruling which allowed deduction of employees' contribution to PF/ESI if paid before the due date of filing return under section 139(1). 2.1.4 Subsequently, the Supreme Court in Checkmate Services Pvt. Ltd. held that sections 36(1)(va) and 43B(b) operate on different fields; that employees' contribution is governed exclusively by the due dates under the respective PF/ESI laws; and that failure to deposit within those statutory due dates results in a permanent denial of deduction under section 36(1)(va), unlike employer's contribution under section 43B which is only deferred on payment basis. 2.1.5 Relying on Saurashtra Kutch Stock Exchange, the Tribunal recognised that non-consideration or inconsistency with binding Supreme Court law constitutes a 'mistake apparent from the record' rectifiable under section 254(2). 2.1.6 Referring to Honda Siel, the Tribunal reiterated that the rectification power exists to prevent prejudice to any party arising from the Tribunal's mistake, error or omission, and that correcting such error does not amount to exercising any inherent power of review but is an atonement for a manifest error. 2.1.7 By invoking Article 141, the Tribunal held that the law declared in Checkmate Services Pvt. Ltd., even though rendered later in point of time, must be treated as the law as it always stood, and therefore the Tribunal's earlier view contrary to this declaration constitutes a mistake apparent from the record. Conclusions 2.1.8 The Tribunal held that, in light of the Supreme Court's decision in Checkmate Services Pvt. Ltd. and the binding effect of Supreme Court law under Article 141, there existed a mistake apparent from the record in its earlier order. 2.1.9 The Tribunal concluded that such mistake was rectifiable under section 254(2), and accordingly modified/rectified its earlier order. 2.2 Allowability of delayed payment of employees' contribution to PF/ESI under section 36(1)(va) Legal framework (as discussed) 2.2.1 The Tribunal considered section 36(1)(va) and section 43B(b) of the Income-tax Act, 1961, as interpreted by the Supreme Court in Checkmate Services Pvt. Ltd. Interpretation and reasoning 2.2.2 Applying Checkmate Services Pvt. Ltd., the Tribunal noted that employees' contributions to PF/ESI are subject to the due dates prescribed under the respective welfare enactments/schemes and that section 36(1)(va) allows deduction only if payment is made within those prescribed due dates. 2.2.3 The Tribunal accepted the Supreme Court's reasoning that sections 36(1)(va) and 43B(b) operate on 'totally different equilibriums' with different due dates and consequences: delay in employees' contributions leads to permanent denial of deduction under section 36(1)(va), whereas delay in employer's contribution attracts section 43B, resulting only in deferment of deduction to the year of actual payment. 2.2.4 Consequently, the Tribunal held that its earlier reliance on the position that payment made before the due date of filing return under section 139(1) suffices for deduction of employees' contribution was contrary to the law as declared by the Supreme Court. Conclusions 2.2.5 The Tribunal concluded that the disallowance made by the revenue authorities under section 36(1)(va) in respect of employees' contribution to PF/ESI deposited beyond the due dates under the respective Acts was fully justified. 2.2.6 The Tribunal held that the assessee's appeal, earlier allowed, stands dismissed upon rectification, and the order stands modified accordingly. 2.2.7 The miscellaneous petition filed by the revenue under section 254(2) was allowed.