Case Law Details
Prime Comfort Products Pvt. Ltd. Vs ACIT (ITAT Delhi)
The Income Tax Appellate Tribunal (ITAT), Delhi, considered an appeal challenging the disallowance of Rs. 21,13,137 claimed as deduction towards delayed payment of employees’ contribution to Provident Fund (PF) and Employees’ State Insurance (ESI) for assessment year 2020–21. During processing of the return, the Centralized Processing Centre (CPC) observed that the assessee had claimed deduction despite not depositing such contributions within the prescribed time. Accordingly, an adjustment was made under Section 143(1), and the disallowance was upheld by the National Faceless Appeal Centre (NFAC).
Before the Tribunal, the assessee argued that such disallowance could not be made through adjustment under Section 143(1), as it did not fall within its scope. It was also contended that the deduction should be allowed if payment was made before the due date of filing the return, or alternatively under Section 37(1). The assessee further argued that the due date should be determined based on the date of salary payment.
The Tribunal rejected the contention that payment before the due date of return filing would make the deduction allowable, relying on the Supreme Court ruling in Checkmate Services Pvt. Ltd., which held that employees’ contributions must be deposited within the due dates prescribed under the relevant statutes, failing which they are treated as income under Section 36(1)(va) read with Section 2(24)(x). The Tribunal also rejected the argument regarding allowability under Section 37(1), noting that the cited decision did not establish such a principle. Further, it held that such adjustment under Section 143(1) was permissible.
However, on the issue of determining the due date, the Tribunal directed the Assessing Officer to verify whether the contributions were deposited within the due dates prescribed under the PF/ESI laws or within any applicable grace period. If found compliant, the deduction should be allowed. Accordingly, the appeal was allowed for statistical purposes.
FULL TEXT OF THE ORDER OF ITAT DELHI
This is an appeal by the assessee against order dated 06.02.2023 passed by National Faceless Appeal Centre (NFAC) for the assessment year 2020-21.
2. The dispute in the present appeal is confined to disallowance of deduction claimed of Rs.21,13,137, being delayed payment of Employees Contribution to Provident Fund (PF) and Employees State Insurance (ESI).
3. Briefly, the facts are, while processing the return of income filed by the assessee for the impugned assessment year, the Centralized Processing Centre (CPC) noticed that, though, the assessee had not deposited employees contribution to PF/ESI, however, the assessee had claimed deduction of such payment.
4. Being of the view that the deduction claimed is not allowable under Section 36(1)(va) read with section 2(24)(x) of the Act, the CPC made an adjustment to the income of the assessee by disallowing the deduction claimed. Though, assessee contested the aforesaid disallowance by filing an appeal before the first appellate authority. However, the first appellate authority upheld the disallowance.
5. Before us, learned counsel appearing for the assessee submitted that the disallowance cannot be made by way of adjustment under Section 143(1) of the Act as it is not covered under Section 143(1)(a)(iv) of the Act. In this context, he relied upon a decision of the Co-ordinate Bench in case of M/s. P.R. Packaging Services – ITA No.2376/Mum/2022 dated 07.12.2022. He submitted, since, the employees contribution to PF and ESI is not in the nature of expenditure, the auditor has not reported it as disallowable expenditure in the tax audit report.
6. Without prejudice, he submitted, the deduction is otherwise allowable under Section 37(1) of the Act. For such proposition, he relied upon the decision of Co-ordinate Bench in case of BBG Metal Syndicate Pvt. Ltd. vs DCIT – ITA No.112/CTK/2022 dated 17.11.2022. Finally, he submitted, the due date for payment of employees contribution to PF and ESI should be calculated with reference to the due date for repayment of salary.
7. I have considered rival submissions and perused material on record.
8. n so far as assessee’s claim that deduction on account of payment of employees contribution to PF and ESI has to be allowed in case it is paid before the due date of filing of return, I am unable to accept such contention of the assessee in view of the binding ratio laid down by the Hon’ble Supreme Court in case of Checkmate Services P. Ltd. – CIT-I [2022] 143 com 178 (SC), wherein, it has been held that unless employees contribution to PF and ESI are deposited within the due date prescribed under the relevant statute governing such payments, the amount in question has to be treated as income of the assessee in terms of section 36(1)(va) read with section 2(24)(x) of the Act. Therefore, the disallowance has to be upheld. In so far as the contention of learned counsel for the assessee that such adjustment is not contemplated under Section 143(1)(a) (iv) of the Act, I am unable to accept the contention in view of the decision of the Co-ordinate Bench, in case of Savleen Kour Vs. ITO – ITA No.2249/Del/2022 dated 09.01.2023.
9. As regards, the contention of the assessee that the deduction is otherwise allowable under Section 37(1) of the Act, I do not find merit in such submission. In case of BBG Metal Syndicate Pvt. Ltd. Vs. DCIT–(supra), the Co-ordinate Bench while considering such submission has not expressed any opinion and has simply restored the issue to the file of the Assessing Officer. Therefore, the decision cited cannot be regarded to be a precedent for laying down the ratio that the payment made can be allowed as deduction under Section 37(1) of the Act. In so far as, learned counsel’s contention that the due date should be calculated with reference to the due date for payment of salary, I direct the Assessing Officer to factually verify the date of payment of employees contribution to PF and ESI and in case they are found to have been paid within the due date prescribed under the PF and ESI Act or within the grace period, if any, under these Acts, then, deduction can be allowed
10. In the result, the appeal is allowed for statistical purposes.
Order pronounced in the open court on 26th April, 2023
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