GANGANAGER VEHICLES PVT. LTD,DELHI V. ITO, WARD-10(1), NEW DELHI

ITA 991/DEL/2024

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Ganganagar Vehicles Pvt. Ltd. appealed against the orders of the Commissioner of Income Tax (Appeals) for the assessment years 2020-21 and 2021-22, which confirmed the additions made by the CPC under section 143(1) of the Income Tax Act. The additions were related to the late deposit of employee contributions to PF and ESIC. The appellant argued that the CIT(A) did not appreciate the facts correctly and ignored submissions regarding a bona fide mistake by the tax auditor and the determination of the due date of deposit based on the actual payment date of salary and wages. The Department's Representative cited the Supreme Court's judgment in Checkmate Services Pvt. Ltd. vs. CIT-1, which supported the lower authorities' decisions. The tribunal found no infirmity in the CIT(A)'s order and dismissed the appeals, aligning with the Supreme Court's precedent.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 38791 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-01-2025
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2021-2022
• Other Referred Cases: Checkmate Services Pvt. Ltd. vs. CIT-1 in Civil Appeal No. 2833 of 2016
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RAJESH KUMAR DHANESTA
• Keywords: Bonafide mistake
• Section: 43B

Judgement Text

"1 ITA Nos. 990 & 991/Del/2024 Ganganagar Vehicles Pvt. Ltd. Vs. ITO IN THE INCOME TAX APPELLATE TRIBUNAL DELHI (DELHI BENCH ‘B’ NEW DELHI BEFORE SHRI YOGESH KUMAR U.S., JUDICIAL MEMBER AND SHRI AVDHESH KUMAR MISHRA, ACCOUNTANT MEMBER ITA No.990/Del/2024 (A.Y. 2020-21) ITA No. 991/Del/2024 (A.Y. 2021-22) Ganganagar Vehicles Pvt. Ltd. BG-223, Sanjay Gandhi Transport Nagar, G. T. Karnal Road, Delhi PAN: AAGCG4590C Vs ITO Ward-10(1) Central Revenue Building, I. P. Estate, Delhi Appellant Respondent Assessee by None Revenue by Sh. Rajesh Kumar Dhanesta, Sr. (DR) Date of Hearing 28/01/2025 Date of Pronouncement 29/01/2025 ORDER PER YOGESH KUMAR, U.S. JM: The above Appeals are filed by the Assessee challenging the order of the Commissioner of Income Tax, Appeal, DDDL/JCIT(A)-2, Chennai, (‘Ld. CIT(A)’ for short) dated 26/02/2024 and 25/01/2024 for the Assessment Years 2020-21 and 2021-22 respectively. 2. None appeared for the Assessee even after issuance of notice. Though the power of attorney has been filed by the Assessee's Representative of the Assessee, even the Assessee's Representative 2 ITA Nos. 990 & 991/Del/2024 Ganganagar Vehicles Pvt. Ltd. Vs. ITO failed to appear and make any submission. Considering the same, we deem it fit to decide the present Appeal on haring the Ld. Department's Representative and verifying the material on record. 3.The Ld. Department's Representative submitted that the issue involved in the present appeal issquarely covered by the Judgment of Hon'ble Supreme Court of India dated 12/10/2022 in the case of Checkmate Services Pvt. Ltd. vs. CIT-1 in Civil Appeal No. 2833 of 2016, further submitted that the ‘due date’ has been duly considered by the Lower Authorities therefore, sought for dismissal of the above Appeals. 4.We have heard the Ld. Department's Representative and perused the material on record. As per the grounds of appeal of the Assessee, the grievance of the Assessee is against the addition made by the CPC u/s 43(1) of the Act on account of late deposit of employee contribution of PF and ESIC beyond the due date under relevant act. It has been contended in the Grounds of Appeal that the Ld. CIT(A) without appreciating the correct facts of the case and ignoring the submission field by the Assessee in respect of bonafide mistake committed by tax auditor in his audit report and without addressing the issue raised by the Assessee in respect of determination of due date of deposit of provident fund and ESI on the basis of actual date of payment of salary and wages is not justified in law and facts and circumstances of 3 ITA Nos. 990 & 991/Del/2024 Ganganagar Vehicles Pvt. Ltd. Vs. ITO the case in confirming the addition made by Ld. DCIT (CPC) u/s 143(1) of the Income Tax Act. 5. The Hon'ble Supreme Court in the case of Checkmate Services Pvt. Ltd. vs. CIT-1 in Civil Appeal No. 2833 of 2016, vide order dated 12/10/2022 held that delayed deposit of the contribution EPF& ESIC beyond the stipulated period prescribed in the respective Acts are not allowable in following manners: - “51.The analysis of the various judgments cited on behalf of the assessee i.e., Commissioner of Income-Tax v. Aimil Ltd. 24; Commissioner of Income-Tax and another v. Sabari Enterprises25; Commissioner of Income Tax v. Pamwi Tissues Ltd. 26; Commissioner of Income-Tax, Udaipur v. Udaipur DugdhUtpadakSahakariSandh Ltd. 27 and NipsoPolyfabriks (supra) would reveal that in all these cases, the High Court’s principally relied upon omission of second proviso to Section 43B (b). No doubt, many of these decisions also dealt with Section 36(va) with its explanation. However, the primary consideration in all the judgments, cited by the assessee, was that they adopted the approach indicated in the ruling in Alom Extrusions. As noticed previously, AlomExtrutions did not consider the fact of the introduction of Section 2(24)(x) or in fact the other provisions of the Act. 52.When Parliament introduced Section 43B, what was on the statute book, was only employer’s contribution (Section 34(1)(iv)). At that point in time, there was no question of employee’s contribution being considered as part of the employer’s earning. On the application of the original principles of law it could have been treated only as receipts not amounting to income. When 4 ITA Nos. 990 & 991/Del/2024 Ganganagar Vehicles Pvt. Ltd. Vs. ITO Parliament introduced the amendments in 1988-89, inserting Section 36(1)(va) and simultaneously inserting the second proviso of Section 43B, its intention was not to treat the disparate nature of the amounts, similarly. As discussed previously, the memorandum introducing the Finance Bill clearly stated that the provisions – especially second proviso to Section 43B - was introduced to ensure timely payments were made by the employer to the concerned fund (EPF, ESI, etc.) and avoid the mischief of employers retaining amounts for long periods. That Parliament intended to retain the separate character of these two amounts, is evident from the use of different language. Section 2(24)(x) too, deems amount received from the employees (whether the amount is received from the employee or by way of deduction authorized by the statute) as income - it is the character of the amount that is important, i.e., not income earned. Thus, amounts retained by the employer from out of the employee’s income by way of deduction etc. were treated as income in the hands of the employer. The significance of this provision is that on the one hand it brought into the fold of “income” amounts that were receipts or deductions from employees income; at the time, payment within the prescribed time – by way of contribution of the employees’ share to their credit with the relevant fund isto be treated as deduction (Section 36(1)(va)). The other important feature is that this distinction between the employers’ contribution (Section 36(1)(iv)) and employees’ contribution required to be deposited by the employer (Section 36(1)(va)) was maintained - and continues to be maintained. On the other hand, Section 43B covers all deductions that are permissible as expenditures, or out-goings forming part of the assessees’ liability. These include liabilities such as tax liability, cess duties etc. or interest liability having regard to the terms of the contract. Thus, timely payment of these alone entitle an assessee to the benefit of deduction from the total income. The essential objective 5 ITA Nos. 990 & 991/Del/2024 Ganganagar Vehicles Pvt. Ltd. Vs. ITO of Section 43B is to ensure that if assessee are following the mercantile method of accounting, nevertheless, the deduction of such liabilities, based only on book entries, would not be given. To pass muster, actual payments were a necessary pre-condition for allowing the expenditure. 53. The distinction between an employer’s contribution which is its primary liability under law – in terms of Section 36(1)(iv), and its liability to deposit amounts received by it or deducted by it (Section 36(1)(va)) is, thus crucial. The former forms part of the employers’ income, and the later retains its character as an income (albeit deemed), by virtue of Section 2(24)(x) - unless the conditions spelt by Explanation to Section 36(1)(va) are satisfied i.e., depositing such 33 amount received or deducted from the employee on or before the due date. In other words, there is a marked distinction between the nature and character of the two amounts – the employer’s liability is to be paid out of its income whereas the second is deemed an income, by definition, since it is the deduction from the employees’ income and held in trust by the employer. This marked distinction has to be borne while interpreting the obligation of every assessee under Section 43B. 54. In the opinion of this Court, the reasoning in the impugned judgment that the non-obstante clause would not in any manner dilute or override the employer’s obligation to deposit the amounts retained by it or deducted by it from the employee’s income, unless the condition that it is deposited on or before the due date, is correct and justified. The non-obstante clause has to be understood in the context of the entire provision of Section 43B which is to ensure timely payment before the returns are filed, of certain liabilities which are to be borne by the assessee in the form of tax, interest payment and other statutory liability. In the case of these liabilities, what constitutes the due date is defined by the statute. Nevertheless, the assessees are given some 6 ITA Nos. 990 & 991/Del/2024 Ganganagar Vehicles Pvt. Ltd. Vs. ITO leeway in that as long as deposits are made beyond the due date, but before the date of filing the return, the deduction is allowed. That, however, cannot apply in the case of amounts which are held in trust, as it is in the case of employees’ contributions- which are deducted from their income. They are not part of the assessee employer’s income, nor are they heads of deduction per se in the form of statutory pay out. They are others’ income, monies, only deemed to be income, with the object of ensuring that they are paid within the due date specified in the particular law. They have to be deposited in terms of such welfare enactments. It is upon deposit, in terms of those enactments and on or before the due dates mandated by such concerned law, that the amount which is otherwise retained, and deemed an income, is treated as a deduction. Thus, it is an essential condition for the deduction that such amounts are deposited on or before the due date. If such 34 interpretation were to be adopted, the non-obstante clause under Section 43B or anything contained in that provision would not absolve the assessee from its liability to deposit the employee’s contribution on or before the due date as a condition for deduction. 55. In the light of the above reasoning, this court is of the opinion that there is no infirmity in the approach of the impugned judgment. The decisions of the other High Courts, holding to the contrary, do not lay down the correct law. For these reasons, this court does not find any reason to interfere with the impugned judgment. The appeals are accordingly dismissed.” 6. In the present case, as could be seen from the order of the Ld. CIT(A), the Ld. CIT(A) has considered the submissions made by the Assessee and rectified the sequence for reporting of due date and actual payment of employees’ contribution of PF and ESI and made 7 ITA Nos. 990 & 991/Del/2024 Ganganagar Vehicles Pvt. Ltd. Vs. ITO actual disallowance. In the absence of any infirmity pointed out by the side of the Assessee, finding no reason to interfere in the order of the Ld. CIT(A) and on following the ratio laid down by the Hon'ble Supreme Court in the case of Checkmate Services (supra), we find no merits in the Grounds of Appeal of the Assessee. 7. In the result, the Appeals filed by the Assessee in ITA Nos. 990/Del/2024 and 991/Del/2024 are dismissed. Order pronounced in the open court on 29th January, 2025 Sd/- Sd/- (AVDHESH KUMAR MISHRA) (YOGESH KUMAR U.S.) ACCOUNTANT MEMBER JUDICIAL MEMBER Date:-29.01.2025 R.N, Sr.P.S* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI "