The Bangalore Bench of Income Tax Appellate Tribunal ( ITAT ) granted relief to assessee, by restricting the disallowance of Provident Fund ( PF ) and Employees State Insurance ( ESI ) contributions, based on the timely payment of the employer’s contributions under section 43B of the Income Tax Act,1961.
Blue Moon Enterprises,appellant-assessee,was a partnership firm engaged in the business of supplying manpower to various entrepreneurs. For the relevant assessment year, the assessee had filed its return of income ( ROI ) on 4th October, 2018, declaring an income of Rs. 59,45,890.
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The return was processed under section 143(1) of the Act, with an order issued on 16th October, 2019. During the processing of the ROI, the Centralized Processing Centre ( CPC ) had disallowed an amount of Rs. 40,76,681, citing the failure of the assessee to deposit the employees’ contribution to PF and ESI within the prescribed time frame.
The assessee, aggrieved by the order of the CPC, filed multiple rectification applications before the lower authorities but did not receive any positive response. Subsequently, the assessee filed an appeal before the Commissioner of Income Tax(Appeals)[CIT(A)], challenging the CPC’s order. However, the appeal was dismissed, with the CIT(A) relying on the judgment of the Supreme Court in Checkmate Services (P.) Ltd. v. CIT (2022) 143 taxmann.com 173 (SC).
The assessee, aggrieved by the order of the CIT(A), appealed before us and argued that both the CPC and the CIT(A) had erred by disallowing the PF/ESI contributions, as they had incorrectly included the employer’s contributions in the disallowance.
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The Tribunal, after considering the submissions and reviewing the record, found that the assessee had argued that the CPC had incorrectly disallowed the employer’s contributions. It was noted that the auditors, while filing Form 3CD, had included the employer’s contributions, which was not correct. The Tax Audit Report should have only reported the employee’s contributions.
Further, the appellate tribunal observed that the employer’s contributions had been paid before the due date for filing the ITR, making the assessee eligible for a deduction under section 43B. It was also clarified that the employer’s contribution was not affected by the Supreme Court’s decision in Checkmate Services (P.) Ltd..
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The two member bench comprising Prakash Chand Yadav ( Judicial Member ) and Laxmi Prasad Sahu ( Accountant Member ) decided to restore the matter to the A.O. for verification and directed that relief be granted to the assessee for the employer’s contributions. The disallowance was to be limited to the employee’s contributions. The Tribunal also dismissed the additional grounds raised by the assessee, as no arguments were presented in support of them.
In conclusion,the appeal filed by the assessee was allowed for statistical purposes.
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