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Eagle Trans Shipping... v. Additional Commissio...
Factual and Procedural Background
The appellant, M/s. Eagle Trans Shipping & Logistics (India) Private Ltd., filed an appeal against the order dated 16.11.2016 passed by the Commissioner of Income-tax (Appeals)-3, New Delhi, relating to the assessment year 2013-14. The dispute concerns the disallowance of an addition of Rs.4,29,110/- under section 36(1)(va) of the Income-tax Act, 1961, representing employees' contributions to Provident Fund (PF) and Employees' State Insurance (ESI) that were deposited after the due dates prescribed by law.
The Assessing Officer (AO) observed from the Form 3CD annexures that the employees' contribution to PF and ESI was deposited late. Consequently, the AO made the addition under section 2(24)(x) read with section 36(1)(v) of the Act. The Commissioner of Income-tax (Appeals) confirmed the addition, partly allowing the appeal. Dissatisfied, the assessee approached the Tribunal by filing the present appeal.
The payments made by the assessee after the due dates were tabulated for Provident Fund and Employees State Insurance contributions, showing specific months, amounts, due dates, and actual deposit dates.
Legal Issues Presented
- Whether the assessee is entitled to claim deduction under section 36(1)(va) of the Income-tax Act for employees' contributions to PF and ESI deposited after the due date but before the filing of the income tax return under section 139(1) of the Act.
- Whether the decisions cited by the assessee, including the Supreme Court decision in CIT vs. M/s. Alom Extrusions Ltd. and the Delhi High Court decision in Pr. CIT-7 vs. Planman HR Pvt. Ltd., apply to the facts relating to employees' contributions as opposed to employer's contributions.
Arguments of the Parties
Appellant's Arguments
- The assessee contended that payment of employees' contribution to PF and ESI, though made after the prescribed due date, was deposited before the due date for filing the income tax return under section 139(1) and hence qualifies for deduction under section 36(1)(va) read with section 2(24)(x) of the Act.
- The assessee relied on the decision of the Delhi High Court in Pr. CIT-7 vs. Planman HR Pvt. Ltd. (2017) and the Supreme Court decision in CIT vs. M/s. Alom Extrusions Ltd. (2009) to support the claim for deduction despite delayed payment.
Respondent's Arguments
- The Revenue relied on the Gujarat High Court decision in CIT-II vs. Gujarat State Road Transport Corporation (Tax Appeal No.637 of 2013) to argue that the appeal should be dismissed and the addition confirmed, maintaining that the deduction is allowable only if the employees' contribution is deposited on or before the due date prescribed under the relevant Acts.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| CIT vs. M/s. Alom Extrusions Ltd. (2009) 319 ITR 306 (SC) | Applicability of section 43B(b) regarding employer's contribution and timing of deduction. | The Court held this precedent inapplicable as it pertains to employer's contribution, not employees' contribution under section 36(1)(va). |
| Pr. CIT-7 vs. Planman HR Pvt. Ltd. (2017) (Delhi High Court) | Interpretation of timing for deduction of employees' contributions to PF & ESI. | Considered by the assessee; the Court did not accept its applicability in the present facts. |
| CIT-II vs. Gujarat State Road Transport Corporation (Tax Appeal No.637 of 2013) | Requirement of deposit of employees' contributions within prescribed due dates for deduction eligibility. | Relied upon by Revenue to support disallowance of deduction for late deposits. |
| CIT vs. Bharat Hotels Ltd. (2019) 410 ITR 417 (Delhi High Court) | Clarification that deduction under section 36(1)(va) is allowed only if employees' contributions are deposited on or before the due date under PF & ESI Acts. | Followed by the Tribunal to hold that deduction is not allowable for amounts deposited after due dates. |
Court's Reasoning and Analysis
The Court examined section 36(1)(va) of the Income-tax Act, which allows deduction only if the employees' contribution is credited to the relevant fund on or before the due date prescribed by the applicable Acts or rules. The "due date" is explicitly defined as the date by which the employer is required to credit the employees' contributions under any Act, rule, order, or notification.
The Court noted that the assessee undisputedly deposited the employees' contributions after the prescribed due dates for PF and ESI, as evidenced by the detailed tabulation of months, amounts, due dates, and deposit dates.
The Court rejected the applicability of the Supreme Court decision in CIT vs. Alom Extrusions Ltd., as that decision relates to employer's contributions under section 43B(b) and not employees' contributions under section 36(1)(va).
The Court relied on the jurisdictional High Court decision in CIT vs. Bharat Hotels Ltd., which held that deduction under section 36(1)(va) is allowed only if the employees' contributions are deposited on or before the due date prescribed under the PF and ESI Acts. Contributions deposited after the due date do not qualify for deduction.
The Court emphasized that statutory provisions and relevant notifications prescribe specific due dates and grace periods for deposit of contributions, and only those deposits made within these timelines qualify for deduction.
Accordingly, the Court found no error in the orders of the authorities below confirming the addition for the late deposits of employees' contributions.
Holding and Implications
The appeal filed by the assessee is dismissed.
The Court held that the assessee is not entitled to claim deduction under section 36(1)(va) of the Income-tax Act for employees' contributions to PF and ESI deposited after the due date prescribed under the respective Acts. The decision confirms that the timing of deposit is critical for claiming such deductions and that late payments do not qualify, thereby upholding the addition made by the revenue authorities. No new precedent was set; the ruling follows established legal principles as interpreted by the jurisdictional High Court.
PER KULDIP SINGH, JUDICIAL MEMBER : Appellant, M/s. Eagle Trans Shipping & Logistics (India) Private Ltd. (hereinafter referred to as the assessee) by filing the present appeal sought to set aside the impugned order dated 16.11.2016 passed by the Commissioner of Income - tax (Appeals)-3, New Delhi qua the assessment year 2013-14 on the grounds inter alia that :-
1. The learned assessing officer as well as CIT(A) has erred in making confirming the addition amounting to Rs.4,29,110/- ITA No.324/Del./2017 u/s 36(i)(va) being employees' contribution to PF & ESI on the basis that the amounts have not been deposited within the due dates as specified in the respective Acts. The various courts have confirmed the position of the law that the assessee can get the benefit of deduction for the payments specified u/s 36(1)(va) i.e. employee's contribution towards PF & ESIC, even if it were paid after the end of the previous year but before the due date for furnishing of return under section 139( I) of the Act. PRAYER: Hence, it is prayed that the addition amounting to Rs.4,29,110/- u/s 36(1)(va) may please be deleted.
2. Briefly stated the facts necessary for adjudication of the issue at hand are : Assessee is into the business of Freight Forwarder (shipping) which buys freight space in the shape of container of ships from shipping lines and sells the same to the Indian importer and exporter. During the assessment proceedings, Assessing Officer (AO) noticed that from Annexure 2 to Annexure 6 of the Form 3CD filed by the assessee that payment of Rs.4,29,110/- towards employees contribution to PF & ESI was deposited after due date prescribed in the Income-tax Act, 1961 (for short the Act). Declining the contentions raised by the assessee, AO proceeded to make addition of Rs.4,29,110/- u/s 2(24)(x) read with section 36(1)(v) of the Act.
3. Assessee carried the matter by way of an appeal before the ld. CIT (A) who has confirmed the addition by partly allowing the ITA No.324/Del./2017 appeal. Feeling aggrieved, the assessee has come up before the Tribunal by way of filing the present appeal.
4. We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case.
5. Undisputedly, assessee has made payment towards employees contribution of PF& ESI after due date prescribed in the Act which is tabulated for ready perusal as under :- PROVIDENT FUND Month Employees Contribution to PF Due date of deposit Date of deposit April, 2012 42372/- 20.05.2012 19.07.2012 May, 2012 44627/- 20.06.2012 19.07.2012 June, 2012 44909/- 20.07.2012 27.08.2012 July, 2012 45912/- 20.08.2012 01.09.2012 August, 2012 46981/- 20.09.2012 24.09.2012 November, 2012 43431/- 20.12.2012 11.01.2013 January, 2013 41132/- 20.02.2013 27.02.2013 February, 2013 39630/- 20.03.2013 26.03.2013 March, 2013 39360/- 20.04.2013 10.05.2013 TOTAL RS.388356/- EMPLOYEES STATE INSURANCE Month Employees Contribution to PF Due date of deposit Date of deposit April, 2012 5781/- 21.05.2012 19.07.2012 May, 2012 4955/- 21.06.2012 19.07.2012 June, 2012 5315/- 21.07.2012 27.08.2012 July, 2012 5078/- 21.08.2012 31.08.2012 August, 2012 5043/- 21.09.2012 22.09.2012 November, 2012 5018/- 21.12.2012 11.01.2013 January, 2013 4841/- 21.02.2013 26.02.2013 March, 2013 4723/- 21.04.2013 08.05.2013 TOTAL RS.40754/- ITA No.324/Del./2017
6. Ld. AR for the assessee challenging the impugned order contended that since the assessee company has made the payment of employees contribution on account of PF & ESI before the date of filing the return by the assessee, the same is within due date for the purpose of section 36(1)(va) of the Act read with section 2(24)(x) and also relied upon the decision of Honble Delhi High Court in case of Pr. CIT-7 vs. Planman HR Pvt. Ltd. 2017 (9) TMI 1688 Delhi High Court and the decision rendered by Honble Supreme Court in CIT vs. M/s. Alom Extrusions Ltd. (2009) 319 ITR 306 (SC).
7. However, on the other hand, in order to repel the arguments addressed by the ld. AR for the assessee, ld. DR for the Revenue relied upon the decision rendered by Honble High Court of Gujarat in case of CIT-II vs. Gujarat State Road Transport Corporation in Tax Appeal No.637 of 2013 & ors. order dated 26.12.2013 and contended that the appeal is liable to be dismissed.
8. Before proceeding further, we would like to go through the relevant provisions contained u/s 36(1)(va) of the Act which are extracted for ready perusal 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 ITA No.324/Del./2017 (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. Explanation.For the purposes of this clause, "due date" means the date by which the assessee is 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.
9. When we examine the issue in controversy in the light of the provisions contained u/s 36(1)(va) of the Act, it is apparently clear that the assessee would be entitled for deductions qua the sum received from any office employee to which provisions under sub- section (x) of clause (24) of section 2 is applied only, if such sum is credited by the assessee to the employees account in the relevant fund or funds on or before the due date. Due date is further defined in the Explanation, which means, the date by which the assessee is required as an employer to credit employees contribution to the employees account in the relevant fund under any Act or rule or order or notification issued thereunder or any standing order or award or service or otherwise. Meaning thereby, in case, employer fails to deposit the entire amount towards employees contribution on account of PF & ESI with concerned department on or before the due date under PF & ESI, the assessee shall not be entitled for deduction to that extent. ITA No.324/Del./2017
10. Decision of the Honble Supreme Court relied upon by the assessee cited as CIT vs. Alom Extrusions Ltd. (supra) is not applicable to the facts and circumstances of the case because Honble Supreme Court has decided the issue in Alom Extrusions Ltd. case qua employers contribution as per section 43B(b) of the Act and not qua employees contribution u/s 36(1)(va) of the Act.
11. Honble jurisdictional High Court in case of CIT vs. Bharat Hotels Ltd. (2019) 410 ITR 417 (Delhi) (supra) decided the identical issue qua delayed deposit of employees contribution on account of PF & ESI against the assessee by holding that assessee would be entitled to deduction in terms of section 36(1)(va) of the Act to the extent if the employees contribution on account of PF & ESI is deposited on or before the due date, and the employees contribution on account of PF & ESI deposited beyond the stipulated period would not make the assessee company entitled to claim deduction from its return. For ready perusal, operative part of the judgment of CIT vs. Bharat Hotels Ltd. (supra) is extracted as under :-
7. The issue here concerns the interplay of Section 2(24)(x) of the Act read with Section 36(1)( va) of the Act alongside provisions of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (especially Regulation 38 of the Employees' Provident Funds Scheme, 1952) and the provisions of the Employees' State Insurance Act, 1948. The AO had brought to tax amounts which were deducted by the employer/assessee from the salaries and wages payable to its employees, as part of their ITA No.324/Del./2017 contributions. It is not in dispute that the employer's right to claim deductions under the main part of Section 43-B of the Act is not an issue. The question the AO had to then decide was whether the amounts deducted from the salaries of the employees which had to be deposited within the stipulated time (in terms of notification/circular dated 19.03.1964 which was modified on 24.10.1973), as far as the EPF contribution went and the period of three weeks as far as the ESI contributions went. The AO made a tabular analysis with respect to the contributions deducted and actually deposited. The cumulative effect of notifications under the Employees' Provident Funds Act, 1952 and the Employees State Insurance Act, 1948 was that in respect of the EPF Scheme contributions the deductions were to be deposited within 15 days of the succeeding wage period with a grace period of 5 days; for ESI contributions the deposit with the concerned statutory authority had to be made within three weeks of the succeeding wage month/period. The CIT in this case confirmed the additions - made by the AO based on the entire amounts that were disallowed. The ITAT however granted complete relief.
8. Having regard to the specific provisions of the Employees' Provident Funds Act and ESI Act as well as the concerned notifications which granted a grace period of 5 days (which appears to have been late withdrawn recently on 08.01.2016), we are of the opinion that the ITAT's decision in this case was not correct. The assessee undoubtedly was entitled to claim the benefit and properly treat such amounts as having been duly deposited, which were in fact deposited within the period prescribed (i.e. 15 + 5 days in the case of EPF and 21 days + any other grace, period in terms of the extent notification). As far as the amounts constituting deductions from employees' salaries towards their contributions, which were made beyond such stipulated period, obviously the assessee was not entitled to claim the deduction from its returns.
9. In view of this discussion, the Revenue's appeal is partly allowed. The AO is directed to examine the contributions made with reference to the dates when they were actually made and grant relief to such of them which qualified for such relief in terms of the prevailing provisions and notifications. We also clarify that the assessee would be entitled to deduction in terms of Section 36(1)(va) of the Act.
12. In view of what has been discussed above and following the decision rendered by the Honble jurisdictional High Court in case ITA No.324/Del./2017 of CIT vs. Bharat Hotels Ltd. (supra), we are of the considered view that the assessee company is not entitled for deduction of Rs.4,29,110/- u/s 36(1)(va) of the Act claimed on account of depositing the employees contribution towards ESI & PF as per provisions contained u/s 2(24)(x) read with section 36(1)(va) after due date which is evident from table extracted in preceding para no.5. So, the case laws relied upon by the ld. AR for the assessee is not applicable to the facts and circumstances of the case. Consequently, finding no illegality or perversity in the impugned order passed by the ld. CIT (A), appeal filed by the assessee is hereby dismissed. Order pronounced in open court on this 25th day of July, 2019. Sd/- sd/- (R.K. PANDA) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated the 25th day of July, 2019 Copy forwarded to: 1.Appellant 2.Respondent 3.CIT 4.CIT(A)-3, New Delhi. 5.CIT(ITAT), New Delhi. AR, ITAT NEW DELHI.
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