M/S SARGAM RETAILS PRIVATE LIMITED,PUNE V. DCIT, CPC , BENGALURU

ITA 1496/PUN/2024

AI Insights

The case revolves around an appeal by M/s. Sargam Retails Private Limited against the order of the CIT(A), Pune-11, which confirmed the addition of Rs.1,43,232/- to the company's income for the assessment year 2022-23. This addition was initially made by the CPC due to the delayed deposit of employees' contributions to the PF, which the company argued was due to technical glitches. The CIT(A) upheld the addition, referencing the Supreme Court's decision in Checkmate Services (P.) Ltd. vs. CIT, which emphasized the necessity of timely deposits. However, the Tribunal, referencing decisions from the Delhi Bench and considering the technical issues cited by the appellant, ruled in favor of the appellant, allowing the appeal and removing the addition.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 32425 (ITAT-PUNE)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-04-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2022-2023
• Other Referred Cases: FIL India Business and Research Services Pvt. Ltd. in ITA No. 412/Del/2023, Checkmate Services (P.) Ltd. Vs. CIT (2022) 143 taxmann.com 178 (SC), The Kangra Co-operative Bank Ltd. Vs. Dy. CIT vide ITA No. 3528/Del/2024, Qualcomm India Private Limited Vs. Dy. CIT in ITA No. 1356/Del/2024
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAMNATH P. MURKUNDE
• Assessee Lawyers: NIKHIL S. PATHAK
• Keywords: Set aside
• Section: 143(1); 43B

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH “A”, PUNE BEFORE SHRI R. K. PANDA, VICE PRESIDENT AND MS. ASTHA CHANDRA, JUDICIAL MEMBER ITA No.1496/PUN/2024 Assessment year : 2022-23 M/s. Sargam Retails Private Limited, 1 Modi Baug, Building A, Shivaji Nagar, Ganesh Khind Road, Pune-411016 V s. Deputy Director of Income Tax, CPC, Bengalure PAN: AAKCS7336N (Appellant) (Respondent) Assessee by : Shri Nikhil S. Pathak Department by : Shri Ramnath P. Murkunde Date of hearing : 02-01-2025 Date of pronouncement : 01-04-2025 O R D E R PER ASTHA CHANDRA, JM : This appeal filed by the assessee is directed against the order dated 19.06.2024 of the Ld. CIT(A), Pune-11 relating to assessment year 2022-23. 2. Facts of the case in brief, are that the assessee is a company engaged in the business of share and securities, trading in F and O, generation of power from windmill and also agency of LPG Gas, Consumer Diesel Pump etc. It filed its return of income on 06.10.2022 declaring total income of Rs.23,24,77,890/-. The said return was processed u/s 143(1) of the Act by the CPC on 16.03.2023 by making adjustment of Rs.1,43,232/- on account of delayed deposit of employee’s contribution towards EPF. Accordingly, the total income was determined at Rs.23,26,21,120/-. 2 ITA No. 1496/PUN/2024 3. Before the Ld. CIT(A) it was argued that the delay was on account of technical glitch. The circular issued by the Provident Fund Department dated 1st June, 2021 and 15th June 2021 were also brought to the notice of the Ld. CIT(A). The decision of the Delhi Bench of the Tribunal in the case of FIL India Business and Research Services Pvt. Ltd. in ITA No. 412/Del/2023 was also relied upon where the Tribunal deleted the disallowance u/s 36(1)(va) of the Act on account of technical glitches in EPFO portal by observing as under : “8. Regarding the claim that the delay was due to the technical glitches, it is seen that the said submission is of general nature and the appellant has not substantiated that the delay was actually on account of technical glitches in EPFO portal. The appellant has also relied on the decision of Hon'ble Delhi Tribunal in the case of FIL India Business and Research Services Pvt. Ltd. (ITA no. 412/Del / 2023) wherein the Hon'ble Tribunal has held that the disallowance u/s 36(1)(va) cannot be made if the delay was on account of technical glitches in EPFO portal.” 4. However, the Ld. CIT(A) was not satisfied with the arguments advanced by the assessee. Relying on the decision of the Hon’ble Supreme Court in the case of Checkmate Services (P.) Ltd. Vs. CIT (2022) 143 taxmann.com 178 (SC) distinguishing the decision of the Delhi Bench of the Tribunal in the case of FIL India Business and Research Services Pvt. Ltd. (supra) confirmed the addition made by the Assessing Officer by observing as under : “5. I have considered the contention of the appellant regarding the disallowance of amount corresponding to employee's contribution towards ESI. The issue as to whether an assessee is entitled for deduction of the payments towards employees' contribution to ESI and EPF deposited after due dates of payment under relevant Acts, but before the due date of filing of return under the Act, had been under a lot of debate and different High Courts had given diverging decisions on this issue. However, the said controversy has been set at rest by the Hon'ble Supreme Court in its recent judgement given in the case of Checkmate Services (P.) Ltd. v. CIT [2022] 143 taxmann.com 178 (SC) wherein the Hon'ble SC has held that for claiming deduction u/s 36(1)(va) of the Act, contributions should be credited by the assessee to the employee's account in the relevant fund or funds on or before the due date as per Act/Rules/notification etc. related to that fund for deposit of these sums. The relevant portion of the decision is reproduced as under:- 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 3 ITA No. 1496/PUN/2024 treated only as receipts not amounting to income. When 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 is to 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 of Section 43B is to ensure that if assessees 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 ie, depositing such 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 og 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 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 4 ITA No. 1496/PUN/2024 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 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.” 5. Aggrieved with such order of the Ld. CIT(A), the assessee is in appeal before the Tribunal by raising following grounds of appeal : “On facts and in law, 1] The learned CIT(A) erred in confirming the disallowance of Rs.1,43,232/- on account of employees' contribution to provident fund u/s 36(1)(va) on the ground that the said amount was not paid before the due date specified under the PF Act. 2] The learned CIT (A) erred in holding that the case of the assessee was not covered by the circular issued by EPFO dated 31.08.2021 and therefore, the disallowance was justified. 3] The learned CIT(A) failed to appreciate that there was no delay on the part of the assessee in making the payment of Rs.1,43,232/- on account of employees contribution to PF and hence, no disallowance was warranted u/s 36(1)(va) of the Act. 4] The learned CIT(A) failed to appreciate that the case of the assessee was clearly covered by the circular issued by EPFO dated 31.08.2021 and the delay in depositing the amount was on account of non-seeding of Aadhar in the UAN and therefore, no disallowance was warranted u/s 36(1)(va) of the Act. 5] The appellant craves leave to add, alter, amend or delete any of the above grounds of appeal.” 6. The Ld. Counsel for the assessee referring to pages 3 and 4 of the paper book drew our attention to the letter addressed by the assessee to the Regional Commissioner, the Employee’s Provident Fund stating that they could not deposit 5 ITA No. 1496/PUN/2024 the employees’ contribution to PF before 15th June, 2021 due to certain technical glitches. Referring to page 8 of the paper book, the Ld. Counsel for the assessee drew our attention the deposit made on 16th June, 2021. Referring to the decision of the Delhi Bench of the Tribunal in the case of The Kangra Co-operative Bank Ltd. Vs. Dy. CIT vide ITA No. 3528/Del/2024 for AY 2019-20, order dated 29.11.2024 and in the case of Qualcomm India Private Limited Vs. Dy. CIT in ITA No. 1356/Del/2024 for AY 2022-23 vide order dated 27.09.2024, he submitted that under identical circumstances the Tribunal has deleted the addition sustained by the Ld. CIT(A) on account of delay in deposit of employee’s contribution to PF and ESIC where the Aadhar Number is not linked due to the technical issue. He accordingly submitted that in view of the decisions cited (supra) and in view of the technical glitches on the portal of PF organization, such delay of one day due to technical glitches should be condoned and the addition sustained by the Ld. CIT(A) should be deleted. 7. On the other hand, the Ld. DR fairly relied on the order of the Ld. CIT(A). 8. We have heard the rival arguments made by both the sides and perused the record. We find the only dispute in the instant appeal is regarding the allowability of deduction u/s 36(1)(va) of the Act on account of delay in deposit of employees’ contribution to PF by one day due to the technical glitches on the portal of the PF organization. A perusal of the letter addressed by the assessee to the Regional Commissioner, the Employees Provident Fund reads under : 6 ITA No. 1496/PUN/2024 9. We find from pages 5 to 9 of the paper book that the assessee had deposited the employees’ contribution to PF on 16th June, 2021 i.e. with a delay of only one 7 ITA No. 1496/PUN/2024 day which is due to the technical glitches. We find under identical circumstances the Delhi Bench of the Tribunal in the case of Qualcomm India Private Limited (Supra) while deleting the addition sustained by the Ld. CIT(A) on account of disallowance made by the Ld. Assessing Officer on account of delayed payment of employees’ contribution to PF due to the technical glitches has observed as under : “10. During the AY 2022-23, the appellant has deposited an amount of INR 19,48,65,610 towards Employee‟s Contribution Provident Fund („PF‟) for the month of May,2021. The details of the challans for the month of May, 2021 are as under: SI. No Challan Reference Number Employee's Contribution Total amount as per Challan Date of Debit in Bank A/c Date of Challan 1 259160621002965 25,66,403 49,94,817 15-Jun-21 16-Jun-21 2 259160621002919 13,10,01,695 24,81,60,668 15-Jun-21 16-Jun-21 3 259160621002953 1 11,56,102 1 21,78,876 15-Jun-21 16-Jun-21 4 259160621002939 5,96,33,568 11,19,58,937 15-Jun-21 16-Jun-21 5 259160621005055 57,311 1,12,385 16-Jun-21 (Non-seeding of Aadhar) 16-Jun-21 6 259160621005065 4,50,531 8,20,910 16-Jun-21 (Non-seeding of Aadhar) 16-Jun-21 With regard to Serial No. 1 to 4, the PF Payments amounting to INR 36,72,93,297 bearing challan numbers 259160621002965, 259160621002919, 259160621002953 & 259160621002939 (copy of payment receipt enclosed as Annexure 1) were duly debited from Appellant's bank account on 15 June 2021 i.e., within the due date. (Refer Page 183 of Factual Paper book) However, the date of echallans was reflecting as 16 June 2021. The Appellant has deposited the PF contribution pertaining to May 2021 before the due date. However, due to technical glitch on the EPFO Portal on the due date i.e., 15 June 2021 the e-challan was generated only on 16 June 2021.” 10. Since, in the instant case the delay in depositing of the employees’ contribution to PF by one day was due to the technical glitches in the portal of the PF department, therefore, respectfully following the decisions of the Delhi Bench of the Tribunal cited (supra) and in absence of any contrary material brought to our notice, we set aside the order of the Ld. CIT(A) and direct the Assessing Officer to delete the addition of Rs.1,43,232/-. Thus, the grounds raised by the assessee are allowed. 8 ITA No. 1496/PUN/2024 11. In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on 01st April, 2025. Sd/- Sd/- (R. K. PANDA) (ASTHA CHANDRA) VICE PRESIDENT JUDICIAL MEMBER पुणे Pune; दिन ांक Dated : 01st April, 2025 RK आदेश की प्रतितिति अग्रेतिि/Copy of the Order is forwarded to: 1. अपील र्थी / The Appellant; 2. प्रत्यर्थी / The Respondent 3. 4. The concerned Pr.CIT, Pune DR, ITAT, ‘A’ Bench, Pune 5. ग र्ड फ ईल / Guard file. आदेशानुसार/ BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अदिकरण ,पुणे ITAT, Pune S.No. Details Date Initials Designation 1 Draft dictated on Sr. PS/PS 2 Draft placed before author Sr. PS/PS 3 Draft proposed & placed before the Second Member JM/AM 4 Draft discussed/approved by Second Member AM/AM 5 Approved Draft comes to the Sr. PS/PS Sr. PS/PS 6 Kept for pronouncement on Sr. PS/PS 7 Date of uploading of Order Sr. PS/PS 8 File sent to Bench Clerk Sr. PS/PS 9 Date on which the file goes to the Head Clerk 10 Date on which file goes to the A.R. 11 Date of Dispatch of order "