Date of presentation of cheque should be deemed as date of payment of employee contribution

Sparrow Security Services Vs ITO (ITAT Amritsar)

ITAT Amritsar held that date of presentation of cheque should be taken as date of payment. Accordingly, payment of employee contribution is deemed to have been made on the date of presentation of cheque.

Facts- The assessee has filed return u/s 139(1) for the impugned assessment year. By passing the audit report of the assessee the return was processed by CPC u/s 143(1) and addition was made Rs.48,07,613/- for late deposit of contribution made in respect of PF & ESI u/s 36 (1)(va) of the Act. Aggrieved assessee filed an appeal before the ld. CIT(A) against the order of the ld. AO.

But without considering the assessees’s submission the order was passed and confirmed the assessment order. Being dissatisfied with the order of the CIT(A) the assessee filed an appeal before us.

Conclusion- As per CBDT circular no. 261 dated 08.08.1979, in terms of rule 80 of the Compilation of the Treasury Rules, if a cheque or draft tendered in payment of Government dues and accepted under the provisions of rule 79 is honoured on presentation, the payment is deemed to have been made on the date on which it was handed over to the Government bankers.

Further the payment by cheque within due date is squarely covered by the Board Circular and the order of the ITAT, Bangalore Bench in the case of Moody’s Analytics Knowledge Services (India) (P.) Ltd. vs. ITO. Therefore, the addition of Rs.28,91,068/- and Rs.8,37,424.9 are liable to be quashed.

FULL TEXT OF THE ORDER OF ITAT AMRITSAR

The instant appeal of the assessee was filed against the order of the ld.

Commissioner of Income Tax (Appeals), NFAC, Delhi,[in brevity the ‘CIT (A)’] order passed u/s 250of the Income Tax Act 1961[in brevity the Act], for A.Y. 2018-19.The impugned order was emanated from the order of the NAC Delhi, order passed u/s 143(3) r.w.s. 143(3A) & 143 (3B) of the Act date of order 19.01.2021.

The assessee has taken the following grounds: –

“1. That the Ld. CIT(A) has erred in dismissing the appeal by passing order u/s 250(6) and sustaining the addition made by the AO.

2. That the order passed u/s 250(6) of the Income Tax Act, is bad in law as the same has been disposed off without examining the merits of the case.

3. That the CIT(A) has erred in confirming the addition of Rs. 4807613/- on account of employer and employee contribution paid after the due date as per statute by not appreciating that the same was duly deposited before the due date of filing of return of income.

4. That the Ld. CIT(A) has erred in not appreciating that the addition of Rs. 4807613/-includes employer contribution of Rs. 2891068/- and employee contribution of Rs. 1916345/- and by placing reliance upon the judgement of apex court in the case of Checkmate Services Pvt. Ltd. Without appreciating that before the said judgement, the same issue was decided in favour of the assessee by Hon’ble high Court wherein, the adjustment/disallowance made on account of ESI and EPF constituted mistake apparent from record (being in contravention to jurisdictional high court). That the Ld. CIT(A) has erred in ignoring the judgement of Hon’ble Supreme Court in the case of M/s MEPCO INDUSTRIES LIMITED, in which it has been stated that prior mistake apparent from record cannot be rectified/obliterated by subsequent adverse SC JUDGMENT on the same issue. .

5. That the CIT(A) has wrongly placed reliance upon the judgement of apex court in the case of Checkmate Services Pvt. Ltd by not appreciating that the issue involved in this case in only with respect to employees contribution and as such cannot be applied on employer contribution of Rs. 2891068/- made by the assessee firm. That the CIT(A) has erred in not appreciating that employer’s contribution is covered by section 43B clause (b)

6. That the CIT(A) has erred in not appreciating that the CPC has duly allowed the rectification in subsequent AY 2019-20 by wrongfully stating that each assessment year is distinct since apart from the yearly amendments, the income tax act does not discriminate between different assessment years and the decision in one assessment is applied consistently to another assessment year.

7. That the appellant craves leave to add or amend the grounds of appeal before the appeal is heard and disposed off.”

2. Brief fact of the case is that the assessee has filed return u/s 139(1) for the impugned assessment year. By passing the audit report of the assessee the return was processed by CPC u/s 143(1) and addition was made Rs.48,07,613/- for late deposit of contribution made in respect of PF & ESI u/s 36 (1)(va) of the Act. Aggrieved assessee filed an appeal before the ld. CIT(A) against the order of the ld. AO. The assessee placed that the entire amount of late contribution of PF & ESI is not the point of addition for violation of section 36. The entire amount is mixed in three parts. The assessee segregated the additions in three parts which are amount to Rs.28,91,068/- is related to employer contribution and the rest amount Rs.19,16,345/- Rs. 837424.90 was related to the late credit of cheque which was produced in the bank within the time limit. So, there is no violation for late payment of the employee contribution. The rest amount Rs.10,79,120/- is well accepted by the ld. AR of the assessee for addition with the total income by respectfully relying on the order of the Hon’ble Supreme Court in the case of Checkmate Services P. Ltd. Vs CIT (Civil Appeal No.2833 of 2016 dated 12.10.2022), [2022] 143 taxmann.com 178 (SC).

The ld. AR placed that all the details were submitted before the ld. CIT(A). But without considering the assessees’s submission the order was passed and confirmed the assessment order. Being dissatisfied with the order of the CIT(A) the assessee filed an appeal before us.

3. Considering the grounds of the assessee, the ld. AR has argued ground wise before the bench.

Ground No.1, is general in nature. As such no additional comments are being given.

Submission in Ground No. 2 to 5

3.1 The ld. AR combinedgrounds in argument and placed that the nature of the
payment of the PF & ESI is combined with employer and employee contribution. The relevant part of the submission is extracted as below:

Submissions for Ground No 2-5

a) That the CIT(A) has erred in confirming the addition of Rs. 4807613/- without going through the facts of the case. The CIT(A) has erred in applying the judgement of apex court in the case of Checkmate Services Pvt. Ltd. In which it was held that the deduction u/s 36(1)(va) cannot be allowed if the employees’ contribution to PF/ESI was not deposited before the due date as per the respective statute. In the extent case, the addition of Rs. 4807613/- comprises of both employer contribution amounting to Rs. 2891068/- and employee contribution amounting to Rs. 1916345/-. The month wise bifurcation for the same has duly been submitted before the CIT(A) and the CIT(A) ignoring the submissions has confirmed the addition of total contribution which includes employer contribution. Even otherwise, the CIT(A) has erred in not appreciating the fact that some of the payments were made on due date but the cheque clearance for the same was made on subsequent dates.

b) The details of payment made by the appellant for PF and ESI which includes employer contribution and employee contribution are as under: –

c) It is pertinent to mention here that the due date of deposit of provident fund as per The Provident Funds Act, 1925 is 15^thof next month and for any fund set up as per EMPLOYEES’ STATE INSURANCE ACT, 1948, the due date is 21^stof next month up to June 2017. However, there was an amendment in ESI act whereby, the due date was changed from 21^st to 15^th of next month w.e.f July 2017. That the details of late deposit of PF/ ESI contribution of employee is being segregated from the information tabulated in para no ‘b’ above and the same is only covered as per the provisions of section 36(1)(va). The late deposit of employee’s contribution to PF and ESI works out to Rs. 1079120/- as per the following details:

3.2 The ld. AR placed that the employer contribution is related to section 43B which is covered by the CBDT Circular No. 22/2015 dated 17.12.2015. The employer contribution should be allowed if the payment is done before the filing of return u/s 139(1). The extract of the Circular No. is below:

“Circular No. 22/2015

F.No.279/Misc./140/2015-ITJ

Government of India Ministry of Finance Department of Revenue

Central Board of Direct Taxes

******

New Delhi, 17th December, 2015

Subject:- Allowability of employer’s contribution to funds for the welfare of employees in terms of section 43B(b) of the Income Tax Act.

As per section 43B of the Act certain deductions are admissible only on payment basis. It is observed by the Board that some field officers disallow employer’s contributions to provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees, by invoking the provisions of section 43B of the Act, if it has been paid after the ‘due dates’, as per the relevant Acts.

2. The matter has been examined in light of the judicial decisions on this issue. In the case of Commissioner vs. Alom Extrusions Ltd, [2009] 185 TAXMAN 416 (SC), the Apex Court held that the amendments made in section 43B of the Act i.e. deletion of second proviso and amendment in the first proviso, being curative in nature are retrospectively applicable from 1.04.1988. It further held that by deleting the second proviso to section 43B of the Act and amending the first proviso, the contribution to welfare funds have been brought at par with the other duty, cess, fee, etc. Thus, the proviso is equally applicable to the welfare funds also. Therefore the deduction is allowable to the employer assessee if he deposits the contributions to welfare funds on or before the ‘due date’ of filing of return of income.”

3.3 The ld. counsel fully relied on this Circular and placed that the employer contribution amount to Rs.28,91,068/- would not be attracted under the purview of taxable income and the entire amount was paid before the filing the return u/s 139(1). Prayed that the addition amount to Rs. 28,91,068/- should be quashed.

3.4 Further, issue was placed by the ld. AR of the assessee that the amount of Rs.8,37,424.90 is related to employer contribution. The ld. AR explained that the said amount was paid by cheque within the time limit as per the stipulated due date of relevant Acts. But the cheque was cleared after the due date of the relevant act. The ld. AR invited our attention in APB page 122 related to confirmation from the bank for presenting the cheque in the relevant dates and also, the certificate of auditor APB page no. 123is placed. The ld. AR respectfully placed catena of judgment which is reproduced as below:

1. P.L. Haulwel Trailers Ltd.v.Deputy Commissioner of Income-tax, Special Range V. II. [2006] 100 ITD 485 (CHENNAI)

“Section 234C of the Income-tax Act, 1961 – Interest chargeable – Assessment year 1996-97 – Whether where assessee-company deposited its cheques with authorized banker within due date for payment of advance tax but same were encashed after due date, date of presentation of those cheques should be taken as date of payment and no interest was leviable on assessee under section 234C – Held, yes Circular & Notification : CBDT’s Circular No. 261, dated 88-1979.”

2. Moody’s Analytics Knowledge Services (India) (P.) Ltd. v.Income-tax  Officer (TDS), Circle- 2(1), [2020] 113 taxmann.com448 (Bangalore –  Trib.)

Section 201 of the Income-tax Act, 1961 – Deduction of tax at source – Consequence of failure to deduct or pay (Interest under section 201(1A)) – Assessment years 2009-10 to 2012-13 – Assessee-company remitted tax in Online Tax Accounting System(OLTAS) on 7th day of next month which was prescribed date for remittance of tax deducted at source – In OLTAS date of remittance was shown as 8th/9th of succeeding month – Assessing Officer as well as Commissioner(Appeals) were of view that it was only payment as shown in OLTAS that was to be considered and therefore, assessee was liable to pay interest under section 201(1)(1A) for having made payment after prescribed date – However, as held by Tribunal in case of P.L. Haulwel Trailers Ltd. v. Dy. CIT [2006] 100 ITD 485 (Chennai), date of presentation of cheques before authorised banker for payment of advance tax should be taken as date of payment – In instant case it was found that credit to Government’s account was instant as payment was made online – Whether therefore, date of payment to Government was to be regarded as date of payment of tax – Held, yes – Whether thus, payment of tax being within prescribed date, levy of interest under section 201(1A) was not justified”

3. Natma Securities Ltd. v. ACIT, [2022] 145 taxmann.com291 (Delhi –  Trib.)

Section 201 of the Income-tax Act, 1961 – Deduction of tax at source – Consequence of failure to deduct or pay (Illustrations) – Assessment year 2012-13 – Whether for purpose of levy of interest under section 201(1A) for late deposit of TDS, payment of TDS by assessee to bank would relate to date of presentation of cheque by assessee to banker – Held, yes – Whether where assessee had admittedly tendered cheque for TDS payment with bank, well within stipulated ‘due date’, however, there was one day delay in debiting amount from assessee’s bank account which was apparently due to mistake of banker, no interest could have been levied under section 201(1A) on assessee; interest levied by revenue authorities was to be waived off”

3.5 The ld. AR further relied on the CBDT Circular No. 261 dated 08.08.1979, relevant paragraph of the Circular is extracted as below:

“166. Recording date of tender of cheque and date of its realisation on challans for payment of direct taxes is to be done by branch of authorised public sector bank where it is tendered for payment

1. In terms of rule 80 of the Compilation of the Treasury Rules, if a cheque or draft tendered in payment of Government dues and accepted under the provisions of rule 79 is honoured on presentation, the payment is deemed to have been made on the date on which it was handed over to the Government bankers. The need to indicate on the challan the date of tender of the cheque/draft with the authorised public sector bank, was duly taken notice of by the Central Board of Direct Taxes and at the request of the Board, the Reserve Bank issued instructions to all the authorised public sector banks in November 1977 stipulating that the receiving branch should brand either an inward stamp of receipt as soon as the challan is tendered over the counter, or a date stamped with provision for two dates, i.e., the date of tender and the date of the realisation of the cheque. The specimen of the date stamp is as under:

“Date of tender……………………………..

Received payment Rs …………………………….

Rupees …………………………………..

Date of realisation ………………………………………..

For…………………… Bank

Authorised Signatory”

2. Apart from the above procedure, the Central Board of Direct Taxes has revised the proformae of the various challans and new challan forms with colour bands are being progressively used to replace the existing ones. The new challans for the payment of self-assessment tax have already been introduced from 1979 and it will be noticed there from that the counterfoils of the challans meant both for the Income-tax Officer and the taxpayer contain separate columns for recording the date of tender of the cheque and date of its realisation. The other challan forms which are being introduced shortly, also contain similar columns.

3. In view of the foregoing, it is hoped that there will be no difficulty in recording, on the challan, the date of tender of the cheque/draft by the branch of the authorised public sector bank where it is tendered for payment of any of the direct taxes. Circular No. 261 [F.No.385/61/79-IT(B)], dated 08.08.1979. Clarification No.2”

4. The ld. AR placed that the amount Rs.837424.90 was paid by cheque within due date but the clearance was made after the due date of the relevant act. Accordingly, considering the Board Circular, addition the amount to Rs.837424.90 should be quashed.

5. The ld. DR fully relied on the order of the revenue authorities and not able to produce any contrary orders or Circular against the submission of the assessee.

6. We heard the rival submission and considered the documents available on the record. The ld. AR first dissected the addition in two parts that is employer contribution &employee contribution of PF & ESI. The employee contribution isfurther dissected in two parts; i) the amount paid after the due date and ii) second part amount is paid by cheque before due date. The ld. AR placed a summary related the cheque deposited within due dates but debited after the due date as stipulated under relevant Acts which is extracted as below:

g) That the Ld. CIT(A) has erred in not providing the benefit of employee contribution to PF and ESI in the cases where the cheque has been presented by the assessee and the clearance was made after the due date mentioned in the respective act. The details of the same are being produced hereunder: –

7. Related to addition amount to Rs.10,79,120/-, the ld. AR already accepted the addition during the hearing in light of order of Hon’able Apex Court. The issue is already dealt by the same bench in the case of Royal Furnishers Residency vs. CIT(A), in ITA No. 54/Asr/2022 date of order 20/12/2022and order is favour of revenue. So, the entire addition amount to Rs.10,79,120/- is upheld.

7.1 Related to addition Rs.28,91,068/- and Rs.8,37,424.90, we fully relied on the Circulars of the CBDT. The employer contribution is not under the purview of the order of the Hon’ble Apex Court in the case of Checkmate Service Pvt. Ltd (supra). The Hon’ble Apex Court has only dealt with the delay payment of contribution related to employee’s contribution. Further the payment by cheque within due date is squarely covered by the Board Circular and the order of the ITAT, Bangalore Bench in the case of Moody’s Analytics Knowledge Services (India) (P.) Ltd. vs. ITO, supra. Therefore, the addition of Rs.28,91,068/- and Rs.8,37,424.9 are liable to be quashed.

8. In the result, the appeal of the assessee bearing ITA No. 40/Asr/2023 is partly allowed.

Order pronounced in the open court on 24.04.2023