2025 (4) TMI 581 - AT - Income Tax

Delayed PF/ESIC contributions worth Rs. 9,88,728 disallowed following Supreme Court precedent in Checkmate Services case

The ITAT Nagpur dismissed the assessee's appeal regarding addition of Rs. 9,88,728 for delayed payment of employees' PF/ESIC contributions, following the ... Legality of addition made in the intimation u/s 143(1) - delayed payment of Employees Contribution of PF/ESIC Fund as per the actual date of payments made - HELD THAT:- The assessee found mistakes in the Tax Audit Report due to typographic and feeding error by the Tax Auditor in Form no.3CD, due to details of actual date of payment and due date of payment being furnished incorrectly in the column. Consequently, a revised Tax Audit Report dated 04/01/2020 was issued and uploaded by the Tax Auditor. On the application for rectification by which the assessee furnished revised Tax Audit Report correcting the mistake due to typographical error in the original Form no.3CD, and also re–processed the return of income rectifying the mistake, the ADIT, CPC, accepted the application of rectification and the rectification order under section 154 was passed on 04/02/2020 and in the aforementioned rectified intimation, the addition was restricted details of which are available in the rectified intimation order. Thus, for the purpose of present appeal, the amount finally disallowed shall be Rs. 9,88,728, in view of the discussions made hereafter about the legal grounds raised by the assessee. Addition made on account of belated payment of employees’ contribution to PF and ESIC is now covered by the decision of Supreme Court in Checkmate Services (P.) Ltd. [2022 (10) TMI 617 - SUPREME COURT] Accordingly, following the judgement of Supreme Court, the ground of the assessee’s appeal stands dismissed. Interest charged under section 234C - As provisions of section 234C which provides that where in any financial year the assessee liable to pay Advance Tax under section 208 has failed to pay such tax or is less than the percentage prescribed in every quarter mentioned in the Clause (i) of section 234C of the tax due on the returned income than the assessee shall be liable to pay simple interest @1% per month as per mechanics provided therein on the tax due on returned income. Thus, the interest under section 234C is required to be determined considering the tax due as per returned income. Accordingly, the Assessing Officer is directed to determine the interest under section 234C on the basis of tax due on returned income. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment include:1. Whether the addition made under section 143(1) of the Income Tax Act, 1961, regarding the late payment of employees' contributions to the Provident Fund (PF) and Employees' State Insurance Corporation (ESIC) is justified.2. Whether the amendments to sections 36 and 43B of the Income Tax Act, introduced by the Finance Act 2021, apply retrospectively to the assessment year in question.3. Whether the interest charged under section 234C of the Income Tax Act is appropriate.ISSUE-WISE DETAILED ANALYSIS1. Legality of Addition under Section 143(1)Relevant legal framework and precedents: The primary legal provisions involved are sections 36(1)(va), 2(24)(x), and 143(1) of the Income Tax Act. The precedential decision referenced is the Supreme Court judgment in Checkmate Services Pvt. Ltd. v/s CIT.Court's interpretation and reasoning: The Tribunal considered the arguments that payments were made before the due date for filing the return under section 139 and thus should be allowable. However, the Tribunal noted the Supreme Court's decision in Checkmate Services, which clarified that delayed payments of employees' contributions to PF/ESIC are disallowable.Key evidence and findings: The initial addition of Rs. 26,49,199 was based on a typographical error in the Tax Audit Report, which was later corrected, leading to a revised disallowance of Rs. 9,88,728.Application of law to facts: The Tribunal applied the Supreme Court's decision to uphold the disallowance of Rs. 9,88,728, confirming that the adjustment made was within the legal framework.Treatment of competing arguments: The Tribunal dismissed the assessee's argument that the adjustment was outside the scope of section 143(1)(a)(iv) and that the amendments to sections 36 and 43B were not applicable to the assessment year in question.Conclusions: The Tribunal confirmed the addition of Rs. 9,88,728 as per the Supreme Court's ruling.2. Applicability of Amendments to Sections 36 and 43BRelevant legal framework and precedents: The amendments to sections 36 and 43B were introduced in the Finance Act 2021.Court's interpretation and reasoning: The Tribunal agreed with the assessee that these amendments are prospective and do not apply to the assessment year under consideration.Conclusions: The Tribunal acknowledged that the amendments do not impact the current assessment year, but this did not affect the outcome due to the Supreme Court's ruling in Checkmate Services.3. Interest Charged under Section 234CRelevant legal framework and precedents: Section 234C of the Income Tax Act deals with interest for deferment of advance tax.Court's interpretation and reasoning: The Tribunal examined the basis for charging interest and determined that it should be calculated on the tax due on the returned income, not the assessed income.Conclusions: The Tribunal directed the Assessing Officer to recalculate interest under section 234C based on the returned income, allowing this ground of appeal.SIGNIFICANT HOLDINGSThe Tribunal upheld the disallowance of Rs. 9,88,728 for delayed payments of employees' contributions to PF/ESIC, aligning with the Supreme Court's decision in Checkmate Services. It recognized that amendments to sections 36 and 43B are prospective and do not apply to the assessment year in question. The Tribunal also clarified the correct method for calculating interest under section 234C, emphasizing that it should be based on the returned income.'The addition to the extent of Rs. 9,88,728, is confirmed in view of the judgement of Hon'ble Supreme Court in Checkmate Services Pvt. Ltd.'The appeal was partly allowed, with the Tribunal providing relief on the interest calculation under section 234C but upholding the disallowance related to PF/ESIC contributions.