DTH Infra Engineers Private Limited, Karnal V. DCIT Circle, Karnal

ITA 1171/DEL/2023

AI Insights

The case involves DTH Infra Engineers Private Ltd., the appellant, contesting the addition of Rs.35,88,973 to their income for the assessment years 2018-19 and 2019-20. This amount was initially disallowed by the Central Processing Centre (CPC) due to late deposit of employee contributions to EPF/ESI. The CIT(A) upheld this decision, referencing the Supreme Court's judgment in Checkmate Service P. Ltd. vs. CIT, which clarified that such contributions are deemed income of the employer until deposited by the due date. The Tribunal, after hearing the Department's representative and reviewing the records, dismissed the appeals, agreeing with the CIT(A)'s application of the Supreme Court's decision.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 113736 (ITAT-DELHI)
• Duration Of Justice: 5 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2023
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 20-09-2023
• Assessment Year: 2019-2020
• Appeal Filed On: 19-04-2023
• Other Referred Cases: Checkmate Service P. Ltd. vs. CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Section: 154; 2; 37(1); 143(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH ‘B’ : NEW DELHI) SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER and SHRI ANUBHAV SHARMA, JUDICIAL MEMBER ITA Nos.1170 & 1171/DEL/2023 (ASSESSMENT YEARS : 2018-19 & 2019-20) DTH Infra Engineers Private Ltd., vs. DCIT, Circle, 104, Sector 16, Urban Estate, Karnal. Karnal – 132 001 (Karnal). (PAN : AADCD3913B) (APPELLANT) (RESPONDENT) ASSESSEE BY : None REVENUE BY : Shri Vivek Kumar Upadhyay, Sr. DR Date of Hearing : 21.09.2023 Date of Order : 25.09.2023 ORDER PER SHAMIM YAHYA, ACCOUNTANT MEMBER : These are appeals by the assessee directed against the respective orders of the ld. Commissioner of Income-tax/National Faceless Appeal Centre (NFAC) dated 29.03.2023 pertaining to assessment years 2018-19 & 2019-20. 2. Since the issues are common and the appeals were heard together, these are being disposed off by this common order. 3. For the sake of reference, we are referring to the facts and figures of AY 2018-19. The grounds of appeal taken by the assessee in Assessment Year 2018-19 read as under :- ITA Nos.1170 & 1171/Del./2023 2 “1. That on the facts and in the circumstances of the case the order of Ld. CIT(Appeal) National Faceless Appeal Centre, Delhi is bad in law & on facts, as the matter of late deposit of ESI/EPF of employee share was debatable in view of various High Court judgements , therefore no prima facie addition can be made u/s 143(1)(a)(iv). 2. That the order of Ld. CIT(A) National Faceless Assessment Centre, Delhi is bad in law & violative of principles of natural justice as no opportunity of being heard in person was provided to the assessee during appellate proceedings as requested. 3. That on the facts & in the circumstances the amount treated as income u/s 2(24)(x) on application of section 36(1)(va) of the Income Tax Act is otherwise allowable u/s 37(1) of the Income Tax Act being wholly & exclusively incurred for the purpose of business. Accordingly Rs.3588973/- paid by the assessee to EPF/ESI authorities are allowable as deduction from income on payment. 4. That on the facts & in the circumstances the income u/s 2(24)(x) read with section 36(1)(va) is income diversion with overriding title, as income being share of employee contribution to EPF/ESI is received with an obligation to deposit with ESI/EPF authorities. Therefore, the amount of Rs.3588973/- received from employee's as their contribution towards ESI/EPF with statutory authorities with ESI/EPF is allowable as deduction in AY 2018-19, as the same was deposited with authorities.” 4. Brief facts of the case are that the assessee filed return of income for AY 2018-19 on 31.10.2018 declaring total income of Rs.1,67,02,860. The return of income was processed u/s 143(1) of the Income-tax Act, 1961 (for short 'the Act') by CPC on 17.10.2019 and income of the assessee was assessed at Rs.2,02,91,830/-. The assessee filed an application for rectification u/s 154 on 23.05.2020. The CPC, Bangalore passed rectification order u/s154 dated 04.06.2020 and income of assessee was assessed at Rs.2,02,91,830/-. The CPC while processing and passing order u/s 154 noted that there was amount of Rs.35,88,973/-, which is any sum received from employees as contribution to any provident fund or any fund set up under ESI Act or any other fund for the welfare of employees to the extent not credited to the employees account on or ITA Nos.1170 & 1171/Del./2023 3 before the due date. Therefore, the CPC disallowed this amount and added to the total income of the assessee. 5. Upon assessee’s appeal, ld. CIT (A), after considering the submissions of the assessee and placing reliance on the decision of Hon’ble Supreme Court in the case of Checkmate Service P. Ltd. vs. CIT in Civil Appeal No.2833 of 2016 order dated 12.10.2022, upheld the action of the AO. We may gainfully refer the order of the ld. CIT (A) as under :- “ I have carefully gone through the assessment order, Grounds of appeal, statement of facts, submission of the appellant and various judicial pronouncements on the issue. (ii) Section 36(1 )(va) of Act can be read as under: 36 (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28- (i) ------ (va) any sum received by the assessee from any of his employees to which the provisions of sub-clause (x) of clause (24) of section 2 apply, if such sum is credited by the assessee to the employee's account in the relevant fund or funds on or before the due date. 76[Explanation 1].-For the purposes of this clause, "due date" means the date by which the assessee 1. required as an employer to credit an employee's contribution to the employee's account in the relevant fund under any Act, rule, order or notification issued thereunder or under any standing order, award, contract of service or otherwise. 77[Explanation 2.-For the removal of doubts, it is hereby clarified that the provisions of section 438 shall not apply and shall be deemed never to have been applied for the purposes of determining the "due date" under this clause;] (iii) Hon'ble Supreme Court of India in the case of CHECKMATE SERVICES P. L TO. VERSUS COMMISSIONER OF INCOME TAX-1, in CIVIL APPEAL NO. 2833 OF 20160ated.- 12 October 2022has held that: ITA Nos.1170 & 1171/Del./2023 4 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 438 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 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 payout. 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 436 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 ITA Nos.1170 & 1171/Del./2023 5 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." (iv) In view of the above facts and circumstances of the case, I find no infirmity in AO's action in the addition of Rs.35,88,973/- u/s 36(1)(va) in the total income of the appellant. In view of this, the decision of the AO is upheld. Consequently, the Grounds of appeal are dismissed.” 6. Against this order, assessee is in appeal before us. None appeared on behalf of the assessee. Hence, we proceed to decide the appeal after hearing the ld. DR for the Revenue and perusing the records. 7. We find that the issue is no more res integra as Hon’ble Apex Court has conclusively decided the issue in the case of Checkmate Services P. Ltd. (supra). Hence respectfully following the precedent, we do not find any infirmity in the order of the ld. CIT (A) and uphold the same. 8. Our above order applies mutatis mutandis to AY 2019-20 in assessee’s appeal. 9. In the result, both the appeals filed by the assessee are dismissed. Order pronounced in the open court on this 25 th day of September, 2023. Sd/- sd/- (ANUBHAV SHARMA) (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated the 25 th day of September, 2023 TS ITA Nos.1170 & 1171/Del./2023 6 Copy forwarded to: 1.Appellant 2.Respondent 3.CIT 4.CIT (A) 5.CIT(ITAT), New Delhi. AR, ITAT NEW DELHI.