Vigilant Security Placement & Detective Services Pvt. Ltd. Vs DCIT (ITAT Delhi)
The assessee appealed against the order of the National Faceless Appeal Centre (NFAC) for Assessment Year 2019-20 challenging the disallowance of Rs. 2,65,53,841 on account of delayed deposit of employees’ contributions to Provident Fund (PF) and Employees’ State Insurance (ESI). The disallowance arose during processing of the return under Section 143(1) after the Central Processing Centre (CPC) found that the employees’ contributions had not been deposited within the due dates prescribed under the PF and ESI Acts. The first appellate authority upheld the disallowance.
Before the Tribunal, the assessee contended that, as a matter of fact, there was no delay in depositing the employees’ contributions. It was submitted that the relevant month for determining the due date should be the month in which salaries or wages were actually disbursed. According to the assessee, for salaries relating to April 2018 to March 2019, the corresponding due dates for deposit ranged from 15.06.2018 to 15.05.2019. On this basis, the assessee argued that the deposits had been made within time. Reliance was placed on the decisions in Fluid Air (India) vs. DCIT and Kanoi Paper & Industries Ltd. vs. ACIT. Without prejudice, the assessee also contended that the disallowance could not have been made through an adjustment under Section 143(1) of the Income-tax Act.
The Department relied upon the findings of the first appellate authority.
The Tribunal observed that, following the Supreme Court’s decision in Checkmate Services P. Ltd. vs. CIT, the legal position regarding employees’ contributions to PF and ESI was no longer res integra. The Supreme Court had held that where employees’ contributions are not deposited within the due dates prescribed under the respective PF and ESI Acts, the deduction is not allowable under Section 36(1)(va), and such amounts are treated as income under Section 2(24)(x). In view of this decision, the Tribunal rejected the assessee’s contention that the disallowance could not be made through an adjustment under Section 143(1).
However, regarding the assessee’s alternative contention that the due dates should be computed with reference to the month in which salaries or wages were actually disbursed, the Tribunal directed the Assessing Officer to examine the claim strictly in accordance with the provisions of the PF and ESI Acts governing the mode and manner of depositing employees’ contributions. The Assessing Officer was directed to decide the issue after granting the assessee a reasonable opportunity of being heard. Accordingly, the appeal was partly allowed for statistical purposes.
Cases Discussed
- Checkmate Services P. Ltd. vs. CIT (Supreme Court), 448 ITR 518 (SC)
- Kanoi Paper & Industries Ltd. vs. ACIT (ITAT Kolkata), (2002) 75 TTJ 448 (Cal.)
- Fluid Air (India) vs. DCIT (ITAT Mumbai), (1997) 63 ITD 182 (Bom)
FULL TEXT OF THE ORDER OF ITAT DELHI
This is an appeal by the assessee against the order dated 11.11.2022 passed by National Faceless Appeal Centre (NFAC), Delhi for the assessment year 2019-20.
2. The dispute in the present appeal is confined to disallowance of Rs.2,65,53,841/- on account of delay in depositing employees contribution to provident fund (PF) and Employees State Insurance (ESI).
3. Briefly, the facts are, while processing return of income filed by the assessee for the impugned assessment year, the Central Processing Centre (CPC), found that though, the assessee has claimed deduction of expenses on account of payment of employees’ contribution to PF and ESI, however, such amounts were not deposited within the due date as specified in PF and ESI Acts. Accordingly, CPC disallowed the deduction claimed by the assessee while issuing intimation u/s. 143(1) of the Act. Against the said intimation, the assessee preferred appeal before the first appellate authority. However, the first appellate authority did not find merit in the submissions of the assessee and accordingly upheld the disallowance.
4. We have heard Dr. Rakesh Gupta, learned counsel for the assessee and Shri Vivek Vardhan, learned Sr. Departmental Representative. It is the case of the assessee that factually there is no delay in depositing employees contribution to PF and ESI, as the month to be taken should be the month in which the salary/wages has been disbursed. It is submitted, the months involved in the present appeal are April, 2018 to March, 2019. Therefore, the due date for depositing employees contribution towards PF and ESI in respect of these months should be 15.06.2018, 15.07.2018, 15.08.2018, 15.09.2018, 15.10.2018, 15.11.2018, 15.12.2018, 15.01.2019, 15.02.2019, 15.03.2019, 15.04.2019 and 15.05.2019. Thus, it is submitted, there being no delay in making deposits, the disallowance should not have been made. In support of such contention, he relied upon following decisions :
i. Fluid Air (India) vs. DCIT, (1997) 63 ITD 182 (Bom);
ii. Kanoi Paper & Industries Ltd. vs. ACIT (2002) 75 TTJ 448(Cal.)
5. Without prejudice to the aforesaid submission, learned counsel submitted that the present disallowance could not have been made by way of adjustment u/s. 143(1) of the Act
6. Learned Departmental Representative strongly relied upon the observations of first appellate authority.
7. We have considered rival submissions and perused the materials on record. In our view, after the decision of Hon’ble Supreme Court in case of Checkmate Services P. Ltd. vs. CIT, 448 ITR 518 (SC), the disputed issue is no more res integra, as the Hon’ble Supreme Court has clearly and categorically held that in case employees contribution to PF and ESI have not been deposited within the due date prescribed under the PF and ESI Acts, the same cannot be allowed as deduction in view of the provisions contained under section 36(1)(va) of the Act. Hon’ble Supreme Court has further held that in such circumstances, the employees contribution to PF and ESI not deposited within the due date, shall be treated as income of the assessee u/s. 2(24)(x) of the Act. In that view of the matter, we are unable to accept assessee’s contention that the disallowance cannot be the subject matter of adjustment u/s. 143(1) of the Act.
8. As regards the alternative contention of the assessee that the employees contribution to PF and ESI have been deposited within the due date keeping in view the fact that the months to be considered should be the month, in which, salary/wages are disbursed, we direct the Assessing Officer to examine the claim of the assessee strictly with reference to the provisions contained under the PF and ESI Acts in respect of the mode and manner of depositing the employees contribution towards PF & ESI and decide the issue accordingly. Needless to mention, the Assessing Officer must afford reasonable opportunity of being heard to the assessee before deciding the issue.
9. In the result, appeal is partly allowed for statistical purposes.
Order pronounced in the open court on 13/06/2023.
