K. NARASIMHA CHARY

1. Aggrieved by the order dated 17/08/2022 passed by the learned Commissioner of Income Tax (Appeals)-National Faceless Appeal Centre (NFAC), Delhi (“Ld. CIT(A)”), in the case of Sumathi Corporate Services Private Limited (“the assessee”) for the assessment year 2019-20, assessee preferred this appeal.

2. Brief facts of the case are that the assessee, engaged in the business of providing man power/facility management services/house keeping services/security services and skill development services filed their return of income, for the assessment year 2019-20 on 15/09/2019 declaring an income of Rs. 3,23,48,301/-. While processing such return under section 143(1) of the Act, CPC disallowed an amount of Rs. 1,52,80,431/- under section 36(1)(va) of the Act read with section 2(24)(x) of the Act towards delayed remittance of employees’ contribution towards EPF and ESI.

3. In the appeal preferred against such a disallowance, assessee pleaded that such an amount was deposited before the due date to file the return of income and, therefore, the disallowance is not justified. Learned CIT(A) turned down such a plea placing reliance on the decisions in PCIT Vs. Suzlon Energy Ltd., (2020) 115 taxmann.com 340 (Gujarat) and Unifac Management Services (India) Pvt. Ltd., Vs. DCIT (2018) 100 taxmann.com 244 holding that for considering the question as to whether the assessee is entitled to deduction in respect of the sum received by the employer from the employees, but belatedly remitted to Government, section 36(1)(va) read with section 2(24)(x) of the Income Tax Act, 1961 (for short “the Act”) is the proper course and any other interpretation would only defeat the object and scope of provisions under section 43B as well as 36(1)(va) of the Act.

4. Assessee is, therefore before us in this appeal stating that the employees contribution to PF/ESI paid beyond the prescribed dates under respective law, but before the due date for filing of return is qualified to be allowed as a deduction.

5. When the matter is called, neither the assessee nor any authorised representative entered appearance. There is no responses to the notices issued in the address given in form 36. If the assessee is available in such address, such notice should have been served on the assessee. If for any reason, the assessee is not available there, it is for the assessee to make arrangements for service of such notice by furnishing the address where the assessee would be available, or to deliver it to some authorised person, assessee claims the same. Inasmuch as the assessee does not respond to the notice issued in the address given in form 36, the non-service of notice is solely attributable to the conduct of the assessee, and at the same time, since it did not leave any other address either with the Tribunal or with the Revenue, it is not known how to serve the notices to the assessee. In these circumstances, we find no option but to proceed to hear the counsel for Revenue and decide the matter on merits basing on the material available on record.

6. On the admitted facts, the issue remains to be considered is whetherthe employees’ contribution to PF/ESI paid beyond the prescribed dates under the respective law, but before the due date for filing the return of income under section 139(1) of the Act qualifies as an eligible deduction This issue in no longer res integra and in Checkmate Services Pvt. Ltd., Vs. CIT, [2022] 143 taxmann.com 178 (SC) the Hon'ble Apex Court while holding the issue against the assessee, held that,-

“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 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 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 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”.

7. In view of this factual and legal position, we find no merit in the appeal and the same is accordingly dismissed.

8. In the result, appeal of the assessee is dismissed.