Case Law Details
Blue Moon Enterprises Vs ITO (ITAT Bangalore)
In the case of Blue Moon Enterprises vs. ITO, the Income Tax Appellate Tribunal (ITAT) Bangalore addressed the issue of disallowed deductions related to Provident Fund (PF) and Employees’ State Insurance (ESI) contributions. Blue Moon Enterprises, a partnership firm in the manpower supply business, filed its return of income for the 2018-2019 assessment year. However, the Centralized Processing Center (CPC) disallowed Rs. 40,76,681 from the return, citing delayed payment of employee PF and ESI contributions. The assessee contested this, arguing that both employee and employer contributions had been disallowed, even though employer contributions were paid before the due date and thus qualified for deduction under section 43B of the Income Tax Act.
Upon review, the ITAT found that the CPC had indeed erroneously disallowed the employer’s PF/ESI contributions, which were paid on time. ITAT clarified that the Supreme Court’s decision in Checkmate Services (P.) Ltd. v. CIT applies only to employee contributions, not employer contributions. As a result, the ITAT remanded the case to the Assessing Officer (AO) to verify the details and allow the deduction for employer contributions. The disallowance was limited solely to late employee contributions. The ITAT also dismissed additional grounds raised by the assessee that were not substantiated.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
The present appeal of the assessee is arising from the order of the learned CIT(A) dated 24thJuly, 2024 and relates to assessment year 2018-2019, having DIN & Order No. ITBA/NFAC/S/250/2024-25/1066987560(1).
2. The facts of the case are that the assessee is a partnership firm and engaged in the business of supplying manpower to various entrepreneurs. For the impugned year, the assessee has filed its return of income(ROI) on 04th October, 2018 declaring an income of Rs.59,45,890. The return of income filed by the assessee has been processed u/s.143(1) of the Income-tax Act, 1961 vide order dated 16th October, 2019. The Ld CPC while processing the ROI has disallowed an amount of Rs 40,76,681/-alleging that assessee failed to deposit the Employees contribution of PF and ESI in time.
3. Aggrieved with the order of the learned CPC, the assessee filed number of rectification applications before the lower authorities. However, could not find any positive response. At last the assessee filed an appeal before the ld.CIT(A) challenging the order of the CPC. The appeal filed by the assessee before the ld.CIT(A) has been dismissed by relying the judgment of the Hon’ble Supreme Court in the case of Checkmate Services (P.) Ltd. v. CIT (2022) 143 com 173 (SC).
4. Aggrieved with the order of the CIT(A), the assessee appeared before us and contended that the CPC as well as the CIT(A) has erred in not appreciating that the CPC while making the disallowance of PF/ESI, has included the employer’s contributions also.
5. The learned Departmental Representative relied upon the orders of the authorities below.
6. After considering the rival submissions and perusing the material available on record, we observe that it is the case of the assessee that the CPC has wrongly disallowed the employer’s contributions. The learned Counsel for the assessee has drawn the attention of the Bench towards page No.5-15, and page No.17 of the paper book. Perusal of these papers would show that the auditors of the assessee while filing form 3CD has included the sum of employer’s contribution also at Sr. number-20 of Form 3CD, which in our view is not correct. The Tax Auditors should have reported only employee’s contributions at Sr number 20 of Tax Audit Report. It is further observed that assessee has paid the employer contribution before the due date of the filing of ITR and hence the assessee is eligible for the deduction of section 43B vis-à-vis employer contribution. It is pertinent to note that the employer contribution is not covered by the judgment of apex court in the case of Checkmate Services (P.) Ltd. (supra). Considering the facts and circumstances of the case, we hereby restore the matter to the file of the A.O for the purpose of verification and direct the A.O relief should be granted to the assessee in respect of employer’s contribution and the disallowance shall be restricted up to sum attributable to Employee’s contributions. Before parting we clarify that the additional grounds raised by the assessee is not tenable and the counsel for the assessee has also not addressed any arguments vis-à-vis the additional grounds. Therefore, the additional grounds are dismissed as not pressed
7. In the result, the appeal filed by the assessee is allowed for statistical purposes.
Order pronounced in the open court on 05th November, 2024.
Author Bio
