M/S CHECKMATE FACILITY AND ELECTRONIC SOLUTIONS PVT LTD V. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 1

TAXAP/1256/2018

AI Insights

The case involves M/S Checkmate Facility and Electronic Solutions Pvt Ltd, the appellant, challenging the decision of the Income Tax Appellate Tribunal which confirmed the disallowance of Rs. 1,16,87,091 for the late deposit of employees' contributions to PF and ESI. The contributions were deducted from employees' salaries but were not deposited with the statutory authorities within the prescribed time limits. The primary legal contention was whether the contributions, which were deposited before the due date of filing the income tax return, should be disallowed. The court referenced the provisions of the Employees Provident Funds and Miscellaneous Provisions Act, 1952, particularly section 38, which mandates the timely deposit of such contributions.

• Counselvise Citation: [2018] 140 COUNSELVISE.COM (IT) 762422 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 15-10-2018
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income-Tax v. Gujarat State Road Transport Corporation [2014] 366 ITR 170 (Guj)
• Laws Referred To: Income Tax Act, 1961, Employees Provident Funds and Miscellaneous Provisions Act, 1952
• Result in Favour of: Revenue
• Court: HIGH COURT
• Assessee Lawyers: HARDIK VORA
• Keywords: Disallowance; Employee's Contribution; Income tax appellate tribunal; Late deposit; PF and ESI
• Section: 143(3); 36(1)(va); 2(24)(x); 38

Judgement Text

"C/TAXAP/1256/2018 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 1256 of 2018 ========================================================== M/S CHECKMATE FACILITY AND ELECTRONIC SOLUTIONS PVT LTD Versus DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 1 ========================================================== Appearance: MR. HARDIK V VORA(7123) for the PETITIONER(s) No. 1 for the RESPONDENT(s) No. 1 ========================================================== CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MR.JUSTICE B.N. KARIA Date : 15/10/2018 ORAL ORDER (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. Appellant­assessee has challenged the judgment of the Income Tax Appellate Tribunal dated 22.03.2018. Following questions are presented for our consideration: “1. Whether on facts and in law, the Income Tax Appellate Tribunal is right in confirming disallowance of Rs. 1,16,87,091/­ u/s 2(24)(x) r.w.s. 36(1)(va) for delay in payment of employee's contribution to PF and ESI in spite of the fact that it was deposited before due date of filling return of income? 2. Whether on facts and in law, the Income Tax Appellate Tribunal is right in confirming disallowance of Rs. 1,16,87,091/­ u/s 2(24)(x) r.w.s. 36(1)(va) for delay in payment of employee's contribution to PF and ESI, when the delayed payment is considered on the basis of date on which salary Page 1 of 6 C/TAXAP/1256/2018 ORDER pertains to and not the day on which salary is paid ignoring provisions of clause 38 of the Employees' provident fund scheme, 1952.” 2. The issue arises in following background. The assessee is a private limited company. For the assessment year 2013­14, the assessee had filed the return of income declaring total income of Rs.65,65,980/­. The return was taken in scrutiny by the Assessing Officer. In the order of assessment passed by him under section 143(3) of the Income Tax Act, 1961 ('the Act' for short) a disallowance of employees' contributions towards provident fund and ESI amounting to Rs.1,16,87,091/­ was made. This was on account of the fact that the assessee though had deducted such contributions, failed to deposit the same with the statutory authorities within the due date. The Assessing Officer referred to all such deductions and late depositing the contributions in the order of assessment. All these deposits would indicate that the assessee had made the deposits late beyond 20th of Month following the month for which such deduction was being made. The date of 20th of each month was chosen by the Assessing Officer was made considering the normal period of 15 days for Page 2 of 6 C/TAXAP/1256/2018 ORDER making deposit and a further grace period of five days specified under the statute. Since the assessee was delayed in making the deposits even beyond such extended period, he applied the disallowance in terms of section 36(1)(va) of the Act. 3. Learned counsel for the appellant would not dispute that the issue of disallowance of late deposited employees' contributions of PF and ESIC stands covered by the Division Bench judgment of this Court in case of Commissioner of Income­Tax v. Gujarat State Road Transport Corporation reported in [2014] 366 ITR 170 (Guj). He however raised a slightly different contention which did not arise for consideration before this Court in case of Gujarat State Road Transport Corporation (supra). He submitted that in terms of section 38 of the Employees Provident Funds and Miscellaneous Provisions Act, 1952, reference to the time limit for depositing the contributions within 15 days of close of the month must be to the month in which the salary payment is made. For example, therefore if the salary payment for the month of June is made on 5th July, the employer would have time upto 15th of Page 3 of 6 C/TAXAP/1256/2018 ORDER August for depositing the employee's contribution of provident fund. Looking from this angle, there was no delay or default on the part of the present assessee. 4. In terms of section 36(1)(va) of the Act, any sum received by the assessee from any of his employees to which the provisions of section 2(24)(x) applies, would be deducted as long as such sum is credited by the assessee to the employee's account in the relevant funds on or before due date. Explanation to the said sub­section provides that for the purpose of the said clause, “due date” means a date by which the assessee is required as an employer to credit an employee's contribution to the account in which relevant fund under any Act, rule, order or notification issued thereunder or under any standing order, award, contract of service or otherwise. Section 38 of the Employees Provident Funds and Miscellaneous Provisions Act, 1952, becomes relevant. Sub­section (1) thereof reads as under: “(1) The employer shall, before paying the member his wages in respect of any period or part of period for which contributions are payable, deduct the employee's contribution from his wages which together with his own Page 4 of 6 C/TAXAP/1256/2018 ORDER contribution as well as an administrative charge of such percentage [of the pay (basic wages, dearness allowance, retaining allowance, if any, and cash value of food concessions admissible thereon) for the time being payable to the employees other than an excluded employee, as the Central Government may fix. He shall within fifteen days of the close of every month pay the same to the fund “electronic through internet banking of the State Bank of India or any other Nationalized Bank authorized for collection” on account of contributions and administrative charge]: “Provided that the Central Provident Fund Commissioner may for reasons to be recorded in writing, allow any employer or class of employer to deposit the contributions by any other mode other than internet banking”. 5. This provision thus requires an employer before paying the employee his wages to deduct the employee's contribution along with the employer's own contribution as fixed by the Government. It is further required that he shall within fifteen days of the close of every month pay the same to the fund such contribution and administrative charges. In terms of this provision thus, after deducting the employee's contribution towards the funds, the same has to be deposited with the Government within fifteen days of the close of every month. Reference to fifteen days of the close of the month must be in Page 5 of 6 C/TAXAP/1256/2018 ORDER relation to the month during which the payment of wages is to be made and corresponding liability to deduct employee's contribution to the fund arises. The expression “within fifteen days of the close of every month” therefore must be interpreted as having reference to the close of the month, for which, the wages are required to be paid with corresponding duty to deduct employee's contribution and to deposit the same in the fund. 6. Learned counsel for the appellant is therefore not correct in contending that if such wages are paid in the following month, the liability to deposit the employee's contribution to the fund gets differed by another month. 7. Tax Appeal is therefore dismissed. (AKIL KURESHI, J) (B.N. KARIA, J) ANKIT SHAH Page 6 of 6 "