2024 (11) TMI 225 - AT - Income Tax

Employee contributions deposited late constitute income under Section 36(1)(va) read with Section 2(24)(x) following Supreme Court precedent

Satish Kumar Singh Versus The Income Tax Officer, Ward-2 (1), Bilaspur (C.G.)

ITAT Raipur dismissed the assessee's appeal regarding delayed deposit of employees' ESIC and EPF contributions. Following SC precedent in Checkmate ... Delayed deposit of employees share of contribution towards ESIC and EPF - intimation issued u/s. 143(1)(a) - HELD THAT:- Hon’ble Apex Court in the case of Checkmate Services Pvt. Ltd. [2022 (10) TMI 617 - SUPREME COURT] had observed that the employee’s share of contributions towards ESI & EPF deposited by the assessee beyond the due dates prescribed under the said respective Acts would by virtue of Section 36(1)(va) r.w.s. 2(24)(x) of the Act constitute income of the assessee. Whether or not the delayed deposit of employees share of contribution towards ESIC & EPF could have been made by the AO prior to the judgment of Checkmate Services Pvt. Ltd. vide an intimation u/s. 143(1) - As decided in M/s. BPS Infrastructure [2024 (4) TMI 1006 - CHHATTISGARH HIGH COURT] reasoning in the impugned judgment that the non-obstante clause would not in any manner dilute or override the employer’s obligation to deposit the amounts retained by it or deducted by it from the employee’s income, unless the condition that it is deposited on or before the due date, is correct and justified. The non- obstante clause has to be understood in the context of the entire provision of Section 43B which is to ensure timely payment before the returns are filed, of certain liabilities which are to be borne by the assessee in the form of tax, interest payment and other statutory liability. In the case of these liabilities, what constitutes the due date is defined by the statute. Nevertheless, the assessees are given some leeway in that as long as deposits are made beyond the due date, but before the date of filing the return, the deduction is allowed. That, however, cannot apply in the case of amounts which are held in trust, as it is in the case of employees’ contributions- which are deducted from their income. They are not part of the assessee employer’s income, nor are they heads of deduction per se in the form of statutory pay out. They are others’ income, monies, only deemed to be income, with the object of ensuring that they are paid within the due date specified in the particular law. They have to be deposited in terms of such welfare enactments. It is upon deposit, in terms of those enactments and on or before the due dates mandated by such concerned law, that the amount which is otherwise retained, and deemed an income, is treated as a deduction. Thus, it is an essential condition for the deduction that such amounts are deposited on or before the due date. If such interpretation were to be adopted, the non-obstante clause under Section 43B or anything contained in that provision would not absolve the assessee from its liability to deposit the employee’s contribution on or before the due date as a condition for deduction. Accordingly, in the backdrop of the judgment of the Hon'ble Apex Court in the case of Checkmate Services Pvt. Ltd. [2022 (10) TMI 617 - SUPREME COURT] we are unable to concur with the Ld. AR that the A.O/CPC, Bengaluru had erred in rejecting the assessee's application filed u/s. 154 of the Act, wherein the latter had sought for setting aside the disallowance of his claim for deduction of delayed deposit of employees share of contributions towards ESIC & EPF u/s. 36(1)(va) r.w.s. 2(24)(x) of the Act made by the AO/CPC, Bengaluru vide an intimation u/s. 143(1)(a) of the Act prior to the judgment of the Hon'ble Apex Court in the case of Checkmate Services Pvt. Ltd. Vs. CIT (supra) - Ground of assessee dismissed. Issues Involved:1. Disallowance of delayed payment of employee's contribution to provident fund and ESIC under Section 36(1)(va) of the Income-tax Act, 1961.2. Legality of adjustments made by the AO/CPC under Section 143(1) of the Act.3. Applicability of the Supreme Court judgment in Checkmate Services Pvt. Ltd. Vs. CIT.4. Timeliness and procedural aspects of filing the appeal.Issue-Wise Analysis:1. Disallowance of Delayed Payment of Employee's Contribution:The primary issue was the disallowance of Rs. 1,41,16,990/- for delayed payments towards employee contributions to provident fund and ESIC under Section 36(1)(va) of the Income-tax Act, 1961. The assessee argued that the disallowance was arbitrary and not justified. However, the appellate tribunal upheld the disallowance, citing the Supreme Court's decision in Checkmate Services Pvt. Ltd. Vs. CIT, which clarified that delayed deposits of employee contributions must be disallowed as per Section 36(1)(va) read with Section 2(24)(x) of the Act. The tribunal emphasized the distinction between employer's and employee's contributions, underscoring that employee contributions are deemed income unless deposited by the due date.2. Legality of Adjustments Made by AO/CPC:The assessee contested the adjustments made by the AO/CPC under Section 143(1), arguing that such adjustments were impermissible. However, the tribunal referenced the Chhattisgarh High Court's decision in M/s. BPS Infrastructure Vs. ITO, which upheld similar adjustments, affirming that the AO/CPC was within its rights to disallow claims for deductions on delayed deposits of employee contributions under Section 36(1)(va) via intimation under Section 143(1).3. Applicability of Supreme Court Judgment:The tribunal relied heavily on the Supreme Court's judgment in Checkmate Services Pvt. Ltd. Vs. CIT, which provided a comprehensive interpretation of Sections 36(1)(va) and 43B. The judgment clarified that employee contributions not deposited by the due date are deemed income and not deductible, reinforcing the tribunal's decision to uphold the disallowance.4. Timeliness and Procedural Aspects of Filing the Appeal:The appeal was also evaluated on procedural grounds, specifically concerning the timeliness of its filing. The tribunal noted a significant delay in filing the appeal, which the assessee attributed to internal miscommunication. However, the tribunal found the reasons unconvincing and indicative of a lackadaisical approach, leading to the dismissal of the appeal as barred by limitation, in line with the principles laid out by the Supreme Court regarding the strict interpretation of procedural rules in tax matters.Conclusion:The tribunal dismissed the appeal, upholding the disallowance of Rs. 1,41,16,990/- for delayed payments of employee contributions to provident fund and ESIC. The decision was grounded in the Supreme Court's interpretation of relevant tax provisions, emphasizing strict compliance with statutory deadlines for such contributions. The procedural delay in filing the appeal further supported the tribunal's decision to dismiss the case.