In a recent ruling, the Income Tax Appellate Tribunal (ITAT) Delhi branch, rejected an appeal by Gopi Mani Kuttan challenging the disallowance of employees’ contribution to Provident Fund (PF)/ESIC under Section 36(i)(va) r.w.s. 43B of the Income Tax Act.
The ITAT emphasized the fact that belated deposits of employees’ contribution to PF/ESIC must be considered as taxable income of the assessee under Section 2(24)(x) r.w. Section 43B of the Act. Furthermore, the deduction under Section 36(i)(va) of the Act would not be permissible on these belated payments.
Despite the appellant’s plea for a deduction under general provisions for expenditure under Section 37 of the Act, ITAT didn’t accept the argument as Section 37(1) permits deduction of expenditure not covered within Sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee. This effectively means that any expenditure specifically covered under Section 36(1)(va) would not extend to the general clause of Section 37(1).
FULL TEXT OF THE ORDER OF ITAT DELHI
The captioned appeal has been filed by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (“NFAC”), Delhi dated 30/11/2022 arising from intimation dated 05/02/2020 passed u/s 154 of the Income Tax Act, 1961 (“the Act”) concerning Assessment Year 2018-19.
2. As per grounds of appeal, the assessee has challenged the disallowance of employees contribution to Provident Fund/ESIC u/s 36(i)(va) r.w.s. 43B of the Act.
3. The ld. Counsel for the assessee submitted that the assessee is engaged in business of manpower worker supplies to various industries. The deposit towards employees contribution was all made but however slightly late. It was contended that the addition of Rs. 14,82,110/- on account of belated deposit of employees contribution to PF / ESIC is not justifiable under Section 154 of the Act, particularly where the auditor in the Tax Audit Report has never indicated any disallowance to be carried out under Section 36(1)(va) of the Act as required under Section 143(1)(a)(iv) of the Act.
4. The Ld. Sr. DR for the Revenue on its part, contended that Central Processing Centre (“CPC”) has made additions of Rs. 14,82,110/- to the returned income of the assessee on account of late deposit of employees contribution to Provident Fund/ESIC deferred while processing the return of income. In this regard, the action of the Revenue in making disallowance towards late deposit of employees contribution to Provident Fund/ESIC was supported by the judgement rendered in the case of Checkmate Services (P.) Ltd. vs CIT (2022) 143 com 178 (SC). Ld. Sr. DR for the Revenue thus submitted that even for Assessment Years prior to Assessment Year 2018-19, belated deposit of employees contribution held in Trust by the employee Assessee are to be reckoned as taxable income of the assessee u/s. 2(24)(x) r.w. Section 43B of the Act and the deduction u/s 36(i)(va) of the Act would not be permissible thereon in case of belated payments. Ld. Sr. DR for the Revenue further contended that the delayed deposit of employees contribution indicated in the Audit Report is sufficient for adjustment under section 154 of the Act, as held by the Pune Bench of the Tribunal in the case of Cemetile Industries vs ITO TS-933-ITAT-2022 (Pune).
5. The issue towards taxability of belated employees contribution to Provident Fund/ESIC is no longer res integra in the light of the judgement of the Hon’ble Supreme Court in the case of Checkmate Services (P.) Ltd. vs CIT (supra). The coordinate Bench of the Tribunal in Cemetile Industries vs ITO (supra) had expressed a view that such adjustment/disallowance is also permissible in the proceedings carried out u/s 154 of the Act. Very recently, the Co-ordinate Bench of the Tribunal in Savleen Kaur & Others vs ITO in ITA No.2249/Del/2022 & Others for Assessment Year 2018-19 & Others vide order dated 09.01.2023 and in BT Data and Surveying Services India Pvt. Ltd. vs. ITO in ITA No.1658/Del/2021 for Asy 2018-19 vide order dated 07.02.2023 has also taken a similar view and upheld the action of the Revenue. In parity with the view taken by Co-ordinate Benches, we do not see any merit in the appeal of the assessee. We thus, do not see any warrant to any reason to interfere with the order of Ld. CIT(A).
6. We now turn to alternate plea on behalf of the assessee for grant of deduction under general provisions for deduction of expenditure under S. 37 of the Act. We do not see any merit in such plea that the belated deposit of employees contributions to PF/ESIC governed under Section 36(1)(va) is also simultaneously amenable to deduction under Section 37(1) of the Act. In terms of the provision, Section 37(1) permits deduction of expenditure which is not in the nature of expenditure prescribed in Sections 30 to 36 of the Act and also not being in the nature of capital expenditure or personal expenses of the assessee. Thus, in view of such mandate of law, the deduction of expenditure under the general clause of Section 37(1) would not extend to expenditure specially covered within the ambit of Section 36(1)(va) of the Act. The Hon’ble Supreme Court in the case of Checkmate Pvt. Ltd. (supra) itself explains this position in Para 32 of the Judgment. Such view also draws support from the observations made in recent judgment of the Hon’ble Supreme Court in the case of Pr.CIT vs. Khyati Realtors (P) Ltd. (2022) 141 taxmann.com 461 (SC). The alternate plea is thus without any merit.
7. In the result, the appeal of the assessee is dismissed.
Order pronounced in the open Court on 19/06/2023.