Case Law Details
TalentPro India HR Private Limited Vs DCIT (ITAT Chennai)
Doctrine of Prospective Overruling wont apply unless it is so indicated in the decision- No Prospective Mercy for PF/ESI Default -Checkmate is Retro, Says ITAT
Assessee filed returns for AY 2018-19 & 2019-20. CPC, while issuing intimation u/s 143(1), made disallowances of employees’ contribution to PF & ESIC on the ground of delay in remittance beyond the due dates prescribed under the respective welfare statutes. On appeal, CIT(A) confirmed the additions by relying on the Supreme Court judgment in Checkmate Services Pvt. Ltd. v. CIT (2022), which held that employee’s contribution must be deposited within the statutory due date, failing which deduction u/s 36(1)(va) is not allowable.
Before the Tribunal, Assessee argued that the decision in Checkmate Services should apply prospectively because the Supreme Court had not explicitly stated that it would apply retrospectively. Therefore, for earlier years, Assessee claimed that delayed employee PF/ESI payments should still be deductible if paid before the due date of filing the return u/s 139(1), following earlier High Court interpretations.
Department countered that only the Supreme Court has the power to declare a judgment as prospective, & unless the Supreme Court expressly indicates prospective application, its interpretation of law operates retrospectively. Reliance was placed on M.A. Murthy v. State of Karnataka (2003) 7 SCC 517, where the Supreme Court held that there is no prospective overruling unless expressly declared by the Court.
Tribunal agreed with the Revenue. It held that Checkmate Services merely interpreted the law as it always stood & did not carve out a new legal principle. Since the Supreme Court did not specify prospective application, the doctrine of prospective overruling could not be invoked by Assessee. Therefore, Tribunal held that the Checkmate ruling applies retrospectively, & delayed employee contribution to PF/ESI is not allowable as deduction. The disallowance made by CPC & confirmed by CIT(A) was upheld.
The second issue concerned deduction u/s 80JJAA. Due to the PF/ESI disallowance, business income increased. CIT(A) restricted the 80JJAA deduction to 30% of additional employee cost for just one year, allowing only ₹4.16 crore as against assessee’s contention that deduction of ₹10.66 crore (30% for three years) was eligible, but only ₹3.69 crore was claimed in the return due to the cap of gross total income. Assessee argued that Section 80JJAA allows 30% deduction of additional employee cost for three consecutive years, & if income increases on account of disallowance, deduction should proportionately increase. The Department fairly conceded that this computation needed verification. Tribunal noted that Section 80JJAA is an incentive provision intended to promote employment, & deduction is allowable for three consecutive years on the same batch of additional employees. Therefore, if business income increases, the allowable deduction may legitimately be higher, subject to the cap of gross total income. Since the CIT(A) had not examined the computation in detail, & Assessee had filed the relevant statutory Form 10AD, the Tribunal considered it appropriate to remand the matter to AO to recompute the eligible deduction u/s 80JJAA in accordance with law, after giving Assessee proper opportunity.
Conclusion:
- Disallowance of delayed PF/ESIC contribution was upheld by applying the Supreme Court decision in Checkmate Services retrospectively.
- The 80JJAA deduction issue was remanded to AO for fresh computation based on the increased income & statutory provisions.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
Both the appeals filed by the assessee are directed against different but identical orders of the Addl/JCIT(A), Thiruvanantpuram both dated 28.08.2024 for the assessment years 2018-19 and 2019-20.
2. Since issues raised in both the appeals are similar based on the same identical facts, with the consent of both the parties, we proceed to hear the appeals together and pass consolidated order for the sake of convenience.
3. The first common ground raised by the assessee in both the appeals is whether the first appellate authority is justified in confirming the disallowance of contribution to PF and ESIC for both the assessment years under consideration.
4. At the outset, we note that the CPC passed intimation under section 143(1) of the Income Tax Act, 1961 [“Act” in short] by making disallowance of ₹.3,23,84,312/- and ₹.5,76,85,234/- for the assessment years 2018-19 and 2019-20 being late payment of employees’ contributions to Provident Fund and ESIC. On appeal, by following the judgement of Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd. v. CIT in Civil Appeal No. 2833 of 2016 and Others dated 12.10.2022, the first appellate authority confirmed the disallowances made by the CPC, Bengaluru.
5. On being aggrieved, the assessee is in appeal before the Tribunal for both the assessment years under consideration.
6. The ld. AR Shri Sanjeev Aditya, C.A., by reiterating the submissions as made before the first appellate authority, submits that the case law relied on in the impugned order of the Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd. (supra) is prospective and no specific directions given in the above judgement to apply retrospectively.
7. Per contra, the ld. DR Shri R. Clement Ramesh Kumar, CIT submits that it is for the Hon’ble Supreme Court to indicate as to whether the decision in question will operate prospectively. In other words, there shall be no prospective over-ruling, unless it is so indicated in the particular decision. He further submits that it is not open to be held that the decision in a particular case will be prospective in its application by application of the doctrine of prospective over-ruling.
8. Heard both the parties and perused the material available on record. The main contention of the assessee is that the application of the decision of the Hon’ble Supreme Court in the case of M/s. Checkmate Services P. Ltd. v. CIT (supra), relied on by the first appellate authority, is prospective in nature and since there was no specific direction in the judgement to apply retrospectively, the assessee is eligible to claim deduction of employees contribution to PF & ESIC, which was not remitted within the due date specified by the statute.
9. We have perused the decision in the case of M/s. Checkmate Services P. Ltd. v. CIT (supra) and noted that the Hon’ble Supreme Court has considered the issue of disallowance of belated remittances of employee’s contribution to PF & ESI under section 36(1)(va) r.w.s. 2(24)(x) of the Act, and after considering relevant provisions and also by relying upon various judicial precedents held that in order to get deduction under section 36(1)(va) r.w.s. 43B of the Act, timely payment of employee’s contribution to PF & ESI is necessary and in case, there is a delay in remittance of such contribution to respective funds, then, the assessee is not entitled for deduction and further said sum is income of the assessee in terms of section 2(24)(x) of the Act.
10. With regard to the applicability of the decision of the Hon’ble Supreme Court, either prospectively or retrospectively, the contention of the assessee is that unless specifically directed by the Hon’ble Supreme Court to apply the judgement retrospectively, the judgement applies prospectively only, is not acceptable for the reason that in the case of M A Murthy v State of Karnataka, (2003) 7 SCC 517, the Hon’ble Supreme Court has held as under:
“It is for this Court to indicate as to whether the decision in question will operate prospectively. In other words, there shall be no prospective over-ruling, unless it is so indicated in the particular decision. It is not open to be held that the decision in a particular case will be prospective in its application by application of the doctrine of prospective over-ruling.”
11. Thus, we find force in the arguments of the ld. DR. In view of the above decision of the Hon’ble Supreme Court, the arguments of the ld. AR has no legs to stand. In the impugned order, the first appellate authority, rightly followed the decision of the Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd. v. CIT (supra) and confirmed the addition made by the CPC, Bengaluru. Thus, we find no infirmity in the impugned order and the ground raised by the assessee stands dismissed for both the assessment years under consideration.
12. The next common ground raised by the assessee is with regard to restriction of deduction under section 80JJAA of the Act.
13. Consequent upon the confirmation of disallowance of late payment of PF & ESIC of ₹.3,23,84,312/-, the first appellate authority enhanced the total income from business to ₹.5,98,08,044/- and the deduction under section 80JJAA of the Act has been restricted to ₹.4,16,35,521/-, which is 30% of total cost incurred of ₹.13,87,85,069/-as against the assessee’s claim of ₹.10,66,64,623/-.
14. Before us, the ld. AR has submitted that when the disallowance is made [due to belated remittance of PF & ESIC], the gross total income is also increased and the deduction is available to that extent.
He further drew our attention to page 14 of the paper book and submits that the total amount of deduction available under section 80JJA of the Act is ₹.10,66,64,623/- [₹.6,50,29,102 (30% of FY 2016-17) + ₹.4,16,35,521/- (30% of FY 2017-18)] and the amount claimed in the return is ₹.3,69,19,135/- only which is then total income. He further submits that while filing the return of income, the deduction was restricted to the gross total income as deduction cannot exceed the gross total income. He drew our attention to the Accountant’s report in Form 10AD filed for FY 2016-17 & FY 2017-18 placed at pages 145 to 148 of the paper book and submits that if the gross total income/business income increases, then the deduction shall also be increased to that extent.
15. The ld. AR of the assessee referred to the provisions of section 80JJAA of the Act and submits that in order to provide an incentive for the creation of new employment, the Act intends to offer a deduction equal to 30% of the additional employee cost incurred by the assessee for the employment of new employees and the above provisions explicitly allow the said deduction to be claimed for three consecutive assessment years, starting from the year in which such new employment is provided. Since the deduction under section 80JJAA of the Act is not limited to a single assessment year, but, is intended to be spread across three consecutive assessment years, the ld. AR of the assessee prayed for allowance of deduction under section 80JJAA of the Act for the assessment years under consideration.
16. On the other hand, the ld. DR fairly conceded that the matter may be remitted to the file of the Assessing Officer to verify and allow the deduction in accordance with law.
17. We have heard both the parties and perused the material available on record. We have also perused the relevant provisions of section 80JJAA of the Act and the same is reproduced as under for ready reference:
80JJAA(1)Where the gross total income of an assessee to whom section 44AB applies, includes any profits and gains derived from business, there shall, subject to the conditions specified in sub-section (2), be allowed a deduction of an amount equal to thirty per cent. of additional employee cost incurred in the course of such business in the previous year, for three assessment years including the assessment year relevant to the previous year in which such employment is provided.
18. Thus, we find force in the arguments of the ld. AR of the assessee. Under the above facts and circumstances, we remit the matter to the file of the Assessing Officer to recompute the eligible deduction under section 80JJAA of the Act and decide the issue afresh in accordance with law for both the assessment years under consideration by affording an opportunity of being heard to the assessee.
19. In the result, both the appeals filed by the assessee are partly allowed for statistical purposes.
Order pronounced in the open Court on 25th March, 2025 at Chennai.
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