Case Law Details
Sentinel Consultants P. Ltd. Vs ACIT (ITAT Delhi)
The case brought forth key considerations regarding the due date for contributions to the PF-ESI. While the Income Tax Act 1961 stipulates a Mercantile System, the ESIC & PF Act dictates that contributions be deducted when salaries are paid, not when due. This interpretation implies a due date for April’s wages would be the 15th of June rather than May, giving a significant reprieve for those who pay salaries in arrears.
Hon’ble Apex court in the case of Checkmate Pvt Ltd (2022) 143 taxman.com 178 [SC] has stated that due date for the purpose of Sec 36(1)(va) is not as per Sec 139(1) of Income Tax Act 1961, but it should be as per ESIC & PF Act. As per ESIC+PF Act, the contribution has to be deducted when the Wages / Salary are paid and not when the same are due and is to be paid within 15 days from the close of the month; reason being Mercantile System is being followed under Income Tax Act, 1961, but under ESI+PF Act, it has to be deducted from the Wages / Salaries when they are paid. For example, for the month of April, Wages are due on 30th April, but are paid in the month of May and accordingly ESI+PF employee contribution is deducted, when the Wages / Salary is paid. Accordingly, the due date for April’s Wages / Salary is 15 days from the close of the month when the Wages / Salaries are paid in May and thus due date for the purpose of Sec 36(1)(va) should be 15th of June, instead of 15th May. Additionally, it was also argued that since ESI & PF employees contribution is income u/s 2(24)(x) which is to be claimed as deduction u/s 36(1)(va), when paid on or before the due date under respective Acts. Had it been not paid, the same should be allowed as deduction u/s 37 as an EXPENSE, being residuary provision, clearly stating expenses should not be of personal and capital nature and to be incurred wholly and exclusively for the purpose of business. Moreover, Sec 36(1)(va) under Sec 36-Other Deductions-starting from “any sum received….” and not stating that its an Expenses, but Sec 37(1) clearly states “Any expenditure…”. Thus the intimation u/s 143(1) are set aside and the matter is restored to the file of AO for its fresh determination in accordance with law. This has given a breathing space for the assesses’ the respective
FULL TEXT OF THE ORDER OF ITAT DELHI
The captioned appeals have been filed by the assessee against the separate orders of the ld. Commissioner of Income Tax (Appeals)-NFAC, Delhi (‘CIT(A)’ in short) dated 12.12.2022 and 07.12.2022 arising from the intimation orders dated 05.11.2019 & 18.09.2020 passed by the Assessing Officer (AO) under Section 143(1) of the Income Tax Act, 1961 (the Act) concerning AYs 2018-19 & 2019-20 respectively.
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