Om Infra Limited Vs ADIT (CPC) (ITAT Jaipur)
ITAT Jaipur held that non-deposit of employees contribution to ESI and PF within due date as per the respective Act is disallowance by invoking provisions of section 36(1)(va) r.w.s. 2(24)(x) of the Income Tax Act.
Facts- An intimation was issued u/s 143(1) of the Act, whereby, adjustment of PF & ESI was not paid within time for an amount of Rs. 41,89,576/- and unpaid service tax was disallowed as per provision of Section 43B of the Income Tax Act for an amount of Rs. 1,07,621/-.
CIT(A) dismissed the appeal of the assessee. Being aggrieved, the present appeal is filed.
Conclusion- Held that ITAT, Bangalore in the case of Mahaveer Bulk Carriers Vs. Assistant Director of Income Tax has held that since the assessee has not deposited the employees – contribution within the due date as per the respective Acts disallowance can be made as per 36(1)(va) r.w.s. 2(24)(x).
Held that since as per provision section 145A the assessee has to include the service tax and considering that aspect of the matter and we are of the considered view that based on that provision if the assessee does not pay the service tax within the time allowed then the provision of section 43B attracted.
FULL TEXT OF THE ORDER OF ITAT JAIPUR
These two appeals filed by assessee are arising out of the order of the Commissioner of Income Tax (Appeals)-4, Jaipur dated 28/06/2023 [here in after (ld. CIT(A)] for assessment years 2019-20 & 2018-19 which in turn arise from the order dated 10.06.2020 & 27.01.2020 passed under section 154 of the Income Tax Act, by the ADIT, CPC, Bengaluru.
2. At the outset, the ld. AR has submitted that the matter in ITA No. 536/JP/2023 may be taken as a lead case for discussions as the issues involved in the lead case are common and inextricably interlinked or in fact interwoven and the facts and circumstances of other cases are identical except the difference in the amount in other assessment year. The ld. DR did not raise any specific objection against taking that case as a lead case. Therefore, for the purpose of the present discussions, the case of ITA No. 536/JP/2023 is taken as a lead case. Based on the above arguments we have also seen that for both the appeals grounds are similar, facts are similar and arguments were similar and therefore, were heard together and are disposed by taking lead case facts, grounds, and arguments from the folder in ITA No. 536/JP/2023.
3. Before moving towards the facts of the case we would like to mention that the assessee has assailed the appeal in ITA No. 536/JP/2023 on the following grounds;
“1. That the Ld. CIT(A) grossly erred an passing the exparte order since the Appellant filed Adjournment Application it was not discussed & the appeal was decided.
2. That the Ld. CIT(A) also erred in not deciding the ground in legal
3. That the Ld. AO grossly erred in disallowing the ESI/PF expenses in intimation u/s 143(1)/154 and the Ld. CIT(A) also erred in not allowing the ground whereas the Hon. ITA T decided the issue in favour of Assessee.
4. That the Ld. AO grossly erred in disallowing the payment of PF & ESI in intimation u/s 143(1) & also u/s 154 and the Ld. CIT(A) also confirmed the said addition Rs. 4189576/-.
5. That the Ld. AO disallowed the service tax Rs. 107621.00 though not claimed in expenses. The Ld. CIT(A) also erred in not allowing the service Tax expenses Rs. 107621.00 though not claimed as expenses.
6. That Appellant, craves to leave, add, alter the grounds of Appeal.”
4. The fact as culled out from the records is that for the year under consideration in intimation dated 02.12.2019 was issued u/s 143(1) of the Act. In the said intimation adjustment of PF & ESI not paid within time for an amount of Rs. 41,89,576/- and unpaid service tax disallowed as per provision of section 43B for an amount of Rs. 1,07,621/-.
5. Aggrieved from the said adjustment made u/s 143(1), of the Act, assessee preferred an appeal before the ld. CIT(A). A propose to the grounds so raised the relevant finding of the ld. CIT(A) is reiterated here in below:
“(ii). I have carefully considered the facts of the case in the light of submissions made by the appellant and also perused the various citations of jurisdictional High Courts and Hon’ble ITAT as well as the order of the ADIT, CPC, Bengaluru u/s 143(1) of the Act and the applicable law in this regard. The facts of the case are that the appellant collected ESI and PF from its employees but did not pay the sum of Rs. 41,89,576/- within stipulated time as prescribed in the relevant legislation. (Contribution to ESI of Rs. 4,53,702/- and PF of Rs. 37,36,054/-). The amount was however paid before the due date under section 139(1) of filing the return of income. Thus the issues involved in this appeal is as to whether this adjustment could have been made as per the provisions of section 143(1)(a) and whether the addition made by the AO on account of employees contribution to ESI and PP by invoking the provisions of section 36(1)(va) read with section 2(24)(x) of the act was correct or not.
(iii) The claim of the appellant as per the written submissions that the disallowance was not indicated in the Audit Report and therefore the said adjustment could not have been made as per the provisions of section 143(1)(a)(iv) is not acceptable. The information viz-a-viz the amount of the contribution, the due date and the date of actual payment and the no. of days of delay is duly indicated in the Audit Once the Audit Report clearly mentioned the delay the AO is rather duty bound to make such adjustment.
(iv) The claim of the appellant is that the payment of ESI and PP should be allowed as the amount is paid before filing of Return of Income. However, under the provisions of section 2(24)tx) of the Act, the contributions from employees are deemed income and subject to tax in the hands of the employer and the employer will not get deduction under section 36(1)(va) of the Act unless the employer credits such contribution to the employees account in the relevant fund within the due date applicable for that relevant fund.
(v) On this issue the Hon’ble Supreme Court after considering all the divergent decision of various High Courts has given a judgement in the case of Checkmate Services P. Ltd Vs CIT (Supreme Court of India) Civil Appeal No. 2833 of 2016 vide order 12.10.2022. The concluding para no. 54 of decision in the case of Checkmate Service Pvt. Ltd. (supra) is reproduced as under:
54. In the opinion of this court, the 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 Il 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 438 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 assessee 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 other 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 well are enactments. It is upon deposit, in terms of those enactments and an 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 wete to be adopted, the non-obstante. cloue under section 438 or anything contained in the provision would not absove The assessee from its liability to deposit the employee’s contribution on or before the due date os condition for deduction
55 in the light of the above reasonsing, this court is of the opinion that there is no infirmity in the approach of the impugned judgement. The decisions of the other High Courts holding to the contrary, do not lay down the correct law. For those reasons, this court does not find any reason to interfere with the impugned judgement. The appeals are accordingly dismissed”
(vi) Recently, on this issue Hon’ble ITAT, Bangalore SMC-B’ Bench has given a judgement in the case of Mahaveer Bulk Carriers Vs. Assistant Director of Income Tax vide order 06.01.2023. The concluding para in the case of is reproduced as under:
Business expenditure – Employees contribution to PF and ESt-Delayed deposit of employees’ contribution – Addition can be made in respect of the employees contribution to PF/ESI which has not been deposited within the stipulated date as per the respective Acts Since the assessee has not deposited the employees – contribution within the due date as per the respective Acts disallowance can be more as per’s 36/11(va) r/w.s. 2(24)(x)-Checkmate Services (P) Ltd. & Or Vs CIT (2022) 329 CTR (SC) 1: (2022) 218 DTR (SC) 401 followed.
Assessment – Prima facie adjustment under s 143(1) – Disallowance of delayed deposit of employees’ contribution to PF/ESI-Sec. 143111(a) has specified that prima focle adjustment can be made on the basis of information’s available with the return of income along with the necessary documents-Tax Auditor has reported in Form 3CD that the assessee did not deposit the employees’ contribution within the due date Therefore, the same was rightly disallowed while processing the return under s. 143(1)(a) – AA520 Veerappampalayam Primary Agricultural Co-operative Credit Society Lid, vs. Dy. CIT (2021) 321 CTR (Mod) 163 (2021) 202 DTR (Mad) 391 and Amror Co-operative Urban Society v Dy. CIT (2023) 221 TT (Coch followed”
(vii) The disallowance has rightly been made on the basis of the relevant law viz-a-viz the due dates of depositing of the amounts which are held by the employer, the appellant in trust since these are the contributions of the employees and not the share of the contribution to be made by the employer. The Hon’ble Supreme Court has held that these have to be deposited in terms of such welfare enactments. The Hon’ble Supreme Court has also observed that the decision of other High Courts, holding the contrary do not lay down the correct law. From this observation it becomes abundantly clear that this was always the correct law, which will be dully applicable to the facts and circumstances of the case in hand.
(viii) It is also pertinent to mention here that a notice in terms of sec, 251(2) of IT Act was issued on 09.03.2023 to enhance the addition on account of PF/ESI to Rs. 81,16,761/- from the original addition of Rs. 41,89,576/-. The difference has been reconciled being the contribution of the employer. Therefore, no adverse inference is drawn.
6. As the assessee did not find any favor from the order of the ld. CIT(A), preferred the present appeal on the ground as reproduced hereinabove. To support the various grounds so raised by the ld. AR of the assessee, he has filed the written submissions and the same is reproduced herein below:
“That against the order u/s 143(1) & not considering the application u/s 154 the company filed appeal before the Ld. CIT(A). The Ld. CIT(A)-4, Jaipur decided the Appeal vide order dtd. 28.06.2023 the Ld. CIT(A) partly allowed the appeal & dismissed most of the grounds. We also submitted that the ESI/PF adjustment is not to be made in order u/s 143(1) but the Ld. CIT(A) ignored all our submission & dismissed the grounds & appeal. Hence the assessee is in appeal before your honours.
Grounds of Appeal
1. That the Ld. CIT(A) grossly erred an passing the exparte order since the Appellant filed Adjournment Application it was not discussed & the appeal was decided.
2. That the Ld. CIT(A) also erred in not deciding the ground in legal spirt.
3. That the Ld. A.0. grossly erred in disallowing the ESI/PF expenses in intimation u/s 143(1 )/1 54 and the Ld. CIT(A) also erred in not allowing the ground whereas the Hon. ITAT decided the issue in favour of Assessee.
4. That the Ld. A.0. grossly erred in disallowing the payment of PF & ESI in intimation u/s 143(1) & also u/s 154 and the Ld. CIT(A) also confirmed the said addition Rs. 4189576/-.
5. That the Ld. A.O. disallowed the service tax Rs. 107621.00 though not claimed in expenses. The Ld. CIT(A) also erred in not allowing the service Tax expenses Rs. 107621.00 though not claimed as expenses.
6. That Appellant, craves to leave, add, alter the grounds of Appeal.
Ground No. 1
That the Ld. CIT(A) grossly erred an passing the exparte order since the Appellant filed Adjournment Application it was not discussed & the appeal was decided.
Submission
That on last hearing we filed application for adjournment to bring on records the latest order of Hon. ITAT but the Ld. CIT not considered our application & passed the appeal order which has ignored the latest decision of the Hon. ITAT.
Ground No. 2
That the Ld. CIT(A) also erred in not deciding the ground in legal spirt.
Submission
That the Ld. CIT grossly erred in not deciding the appeal on legal issues that about ESI/PF the Hon. ITAT decided that unless the disallowance is made in Tax Audit report the Ld. CIT(A)/A.O. cannot disallow in order u/s 143(1) but the Ld. CIT(A) ignored this legal issue. Similarly about Service Tax also the Ld. CIT(A) ignored our submission that the Service Tax has not been passed though P/L A/c hence when there is question of disallowance by invoking sec. 43B As such the CIT(A) have not decided the ground in legal spirit.
Ground No. 3
That the Ld. A.O. grossly erred in disallowing the ESI/PF expenses in intimation u/s 143(1 )/1 54 and the Ld. CIT(A) also erred in not allowing the ground whereas the Hon. ITAT decided the issue in favour of Assessee.
Submission
That the ESI/PF expenses disallowed by CPC in intimation u/s 143(1 )/1 54 which is not in the power of CPC, the CPC cannot amend the income own its own notion. Similarly the Ld. CIT(A) also ignored the submission of the appellant whereas this issue has been decided by the Hon. ITAT in favour of Assessee in its order in the following case
PARIS ELYSEES INDIA (P) LTD
v/s
DCIT, CIRCLE -7, JAIPUR
ITA No. 357/JPR/2022 A.Y. 2018-19
The company of order is submitted along with paper book. That there is another decision of ITAT, Ahmedabad in the case of
ARHAM PUMPS
v/s
DCIT CPC BANGALORE,
ITA No. 206/AHD/2021 A.Y. 2018-19”
In which the disallowance made u/s 143(1) was deleted. Ground No. 4
That the Ld. A.O. grossly erred in disallowing the payment of PF & ESI in intimation u/s 143(1) & also u/s 154 and the Ld. CIT(A) also confirmed the said addition Rs. 4189576/
Submission
Again the same issue that the Ld. A.O. CPC & Ld. CIT(A) ignored our submission that the disallowance cannot be made in intimation u/s 143(1) and 154. As per the stand taken by Hon. ITAT as submitted in above ground. As such the Ld. CIT(A) is wrong in not allowing the ground of allowance of ESI/PF.
Ground No. 5
That the Ld. A.O. disallowed the service tax Rs. 107621.00 though not claimed in expenses. The Ld. CIT(A) also erred in not allowing the service Tax expenses Rs. 107621.00 though not claimed as expenses.
Submission
That the service Tax was not taken up in P/L A/c it was the O/s liability hence the disallowance cannot be made u/s 43B the relevant papers are submitted.”
7. The ld. AR of the assessee also filed the following evidence / judgment in support of the contentions so raised in the written submission;
