Delay in deposit of PF/ESI for disallowance u/s 36(1)(va) to be calculated from the month of actual payment of salary not accrual. ITAT remands case for examination
ABCAUS Case Law Citation:
ABCAUS 3781 (2023) (07) ITAT
Important Case Laws relied upon:
Checkmate Pvt. Ltd. vs. CIT
Kanoi Paper and Industries Ltd. vs. ACIT
Pr.CIT vs. Khyati Realtors (P) Ltd. (2022)
Sentinel Consultants P. Ltd
In the instant case, both the Income Tax Department had objected to the order passed by the Commissioner of Income Tax (Appeals) / NFAC with respect to allowing deduction of employee’s contribution to PF & ESI under section 36(1)(va) read with section 43B of Income Tax Act, 1961 (the Act).
The assessee also filed cross objections cross objection controverting the grounds of revenue and submitted that the additions/disallowance made by the Assessing Officer by passing the order under Section 143(1) were illegal, bad in law & without jurisdiction as the AO-CPC erred in law as well as on merits in making addition / adjustment towards PF and ESIC contribution of the employees deposited beyond the due date as per PF and ESIC Act.
The Revenue relied upon the recent judgment of the Hon’ble Supreme Court in the case of Checkmate Pvt. Ltd. and submitted that appeal be allowed reversing the first appellate order and restoring that of the Assessing Officer.
It was also the plea of the assessee that deduction is otherwise allowable u/s 37(1) of the Act.
The assessee further submitted that it was engaged in the business of building construction and in the backdrop of nature of work, the salary in such business is often disbursed to the employees as and when the funds are arranged from the clients.
It was submitted that owing to belated receipt of service charges from clients, the disbursement of salary are also, at times, paid late in tandem. The ‘due date’ for deposit of employees’ contribution under the respective Acts should therefore be reckoned with reference to the month of actual salary payment and not when the liability to pay arises to an employer. It was further contended that when the due date under PF/ESIC Act is computed with reference to the month in which the salary has been actually paid, the alleged delay in payment of ESIC/PF would be substantially ironed out.
It was stated that the Revenue has computed the delay with reference to the month in which the liability to pay salary has arisen to the employer rather than the month in which such salary has been actually paid resulting in alleged delay giving rise to impugned disallowance.
With respect to alternate plea on behalf of the assessee for grant of deduction under general provisions for deduction of expenditure u/s 37 of the Act, the ITAT observed that there was no 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. The opined that 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.
With respect to the contention towards methodology of calculation of default under the relevant PF/ESIC Act. The assessee contended that the month during which the disbursement of salary is actually made would be relevant for the purposes of determination of due date of deposit under the respective statute.
The Tribunal observed that the accrual of liability towards payment of salary without actual disbursement would not fasten obligation for deposits of employees contribution in the labour Acts per se. as observed by the co-ordinate bench, an aspect not been found to be examined by the Assessing Officer or CIT(A).
In view of the above, the ITAT restored the matter to the file of Assessing Officer (AO) with direction that the AO shall examine this aspect and pass fresh order in accordance with law after giving proper opportunity.
Accordingly, the intimations u/s 143(1) of the Act was set aside and the issue of allowability of employees contribution to ESIC & PF is restored to the file of Assessing Officer for a fresh adjudication after allowing due opportunity of hearing to the assessee by considering the explanation and factual matrix of the issue and factual contentions of assessee, without being influence with the earlier intimation and first appellate order.
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