If Employees' Contributions Are Not Paid Within Due Dates Specified Under PF Act, Then Employer Is Not Entitled To Deduction U/s 36(1)(Va): Bangalore ITAT
Pankaj Bajpai
3 May 2024 3:30 PM IST
The Bangalore ITAT reiterated that 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 is 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)...
The Bangalore ITAT reiterated that 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 is 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 amount received or deducted from the employee on or before the due date, added the Bench.
The Bench of George George K (Vice President) and Laxmi Prasad Sahu (Accountant Member) observed that “the Apex Court judgment in the case of Checkmate Services Pvt. Ltd. will squarely apply. The Apex Court in the aforesaid judgment has categorically held that if the employees' contributions are not paid within the due dates specified under the respective Acts, assessee will not be entitled to deduction under section 36(1)(va) of the Act”. (Para 8)
As per the brief facts of the case, the Assessee is a proprietary concern deriving income from labour contract. Consequent to filing of its return, an intimation was issued by CPC at total income computed at Rs.92,46,580/- as against the declared income of Rs.14,04,220/-. In the said intimation, a solitary addition of Rs.78,42,360/- was made by disallowing the payments of employees' contribution to the PF and ESI accounts for the reason that the said amounts were not paid within the due date specified under respective Acts. On appeal, the CIT(A) took note of the retrospective amendment brought into section 36(1)(va) and 43B of the Act.
The Bench noted that for the Assessment Years 2018-19 and 2019-20, admittedly assessee had not paid the employees' contribution to PF and ESI account within the due dates specified under the respective Acts.
Such being the scenario, the Apex Court judgment in the case of Checkmate Services Pvt. Ltd. will squarely apply, wherein it was categorically held that if the employees' contributions are not paid within the due dates specified under the respective Acts, assessee will not be entitled to deduction under section 36(1)(va) of the Act, added the Bench.
However, noting that the assessee had raised a question as to when a contractor is not paying the dues to EPF, how the EPF contribution of contract employees are protected, the ITAT remitted the matter to the FAA for adjudication afresh.
Counsel for Appellant/ Assessee: Vinay Kulkarni
Counsel for Respondent/ Revenue: Nilanjan Dey and S. Subramanian
Case Title: Shri. Trimbak Konher Patil verses ITO
Case Number: ITA Nos.5 and 6/Bang/2024
