The Kolkata bench of the Income Tax Appellate Tribunal ( ITAT ) ruled deduction cannot be claimed by Assessee when employees’ contribution not being paid to the respective Provident Fund ( PF ) and Employees State Insurance Act ( ESI ) Acts.
The Commissioner of Income Tax (Appeals) [CIT(A)] has erred in confirming the disallowance of Rs.1,77,55,593/- in the case of Jankalyan Vinimay Pvt. Ltd. and Rs.1,08,57,982/- in the case of Sunbeam Vanijya Pvt. Ltd. Both these disallowances have been made by the ld. Assessing Officer under Section 143(1) of the Income Tax Act, 1961 on the ground that both the assessees have failed to make payments of employees’ contributions to P.F. & ESI within the due date provided under those Acts.
Mr. Miraj D. Shah representing the assessees has raised an additional argument. He submitted that when assessees have filed the returns, at that point of time, the decision of the Jurisdictional High Court was in favour of the assessee in the case of CIT –vs.- Vijayshree Limited The Supreme Court has subsequently decided the issue against the assessee. Therefore, at that point of time, there was no debate to make a disallowance.
Further the order of the Assessing Officer passed under Section 143(1) is erroneous. He further contended that since no disallowance could have been made when impugned order under section 143(1) was passed, therefore, CIT (Appeals) ought to have deleted the disallowances.
The CIT (A) viewed that non-disallowance of employees’ contribution not paid in the respective accounts within the due date amounts to an error crept in the assessment order, which has caused prejudice to the revenue.
Further examined on that day whether the disallowance was not made by the Assessing Officer under section 36(1)(va) was prejudicial to the interest of revenue or not. The High Court was examining the correctness of the view formulated by the CIT on 08.11.2021 and held that since judgment of the Jurisdictional High Court was in favour of the assessee, therefore, on 08.11.2021 it cannot be construed that action of the Assessing Officer was erroneous and prejudicial to the interest of Revenue.
The bench noted that the assessee’s returns had been processed at the Computer Processing Centre (CPC). If the Auditors reported in the Audit Report that the assessee had deducted employees’ contributions from their salaries but failed to deposit them within the stipulated timeframe under the EPF & ESI Act, then, according to the precedent set by the Supreme Court, there was no room for debate. Following the Supreme Court’s decision, it must be understood that if an employer fails to remit employees’ contributions to the respective PF & ESI Acts, they cannot claim deductions. This cannot be justified based solely on the timing of the Supreme Court’s ruling. Therefore, the CIT (Appeals) rightly dismissed the assessee’s claim.
Therefore, the two member bench of the tribunal comprising Manish Board (Accountant member) and Rajpal Yadav (Vice President) concluded that according to the revenue there was no debate on this point at the level of the assessing officer. At the time litigation was raised to the level of CIT (A), the Supreme Court had decided the position of law. Therefore, there was no merit in this fold of contention also. Accordingly, the appeal filed by the assessee are dismissed.
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