MGI Infra Pvt Ltd vs ACIT Circle-16(2), New Delhi | Assessment Year 2016-17 | Employee Contribution Dispute

MGI Infra Pvt Ltd vs ACIT Circle-16(2), New Delhi: Assessment Year 2016-17

Case Number: ITA 6500/DEL/2019

Appellant: MGI Infra Pvt Ltd, New Delhi

Respondent: ACIT Circle-16(2), New Delhi

Assessment Year: 2016-17

Order Date: 17th January 2023

Pronounced On: 17th January 2023

Order Type: Final Tribunal Order

Background

MGI Infra Pvt Ltd, a company engaged in the business of infrastructure development, filed its return of income for the assessment year 2016-17 on 30th September 2016, declaring a total income of Rs. 94,99,600/-. The case was selected for scrutiny, and an assessment was framed under Section 143(3) of the Income Tax Act on 18th December 2018. The total income was assessed at Rs. 1,05,57,730/-, leading to the filing of an appeal by the appellant against the order of the Assessing Officer (AO).

Why the Case Was Filed

The appellant, MGI Infra Pvt Ltd, filed the case challenging the disallowance of Rs. 4,70,491/- made by the AO under Section 36(1)(va) read with Section 2(24)(x) of the Income Tax Act. The disallowance was related to the delayed deposit of employees’ contributions to the Provident Fund (PF) and Employee State Insurance (ESI). The appellant argued that the disallowance was unjust and should be allowed as a deduction.

Tribunal’s Findings

The Income Tax Appellate Tribunal (ITAT) Delhi Bench, comprising Shri Anil Chaturvedi (Accountant Member) and Shri Narender Kumar Choudhary (Judicial Member), examined the facts of the case and the arguments presented by the Departmental Representative (DR). The key issue was whether the delayed deposit of employees’ contributions to PF and ESI could be allowed as a deduction under Section 36(1)(va) of the Income Tax Act.

During the course of assessment, the AO noticed that there were delays in depositing the employees’ contributions to PF and ESI for various months. The AO invoked the provisions of Section 36(1)(va) read with Section 2(24)(x) and disallowed the amount of Rs. 4,70,491/-. The appellant argued that the disallowance was incorrect and should be reversed.

ITAT’s Decision

The ITAT referred to the recent decision of the Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd. and others vs. CIT & others (2022) 448 ITR 518 (SC). The Supreme Court held that employees’ contributions to relevant funds are considered the employer’s income under Section 2(24)(x) of the Income Tax Act. The deduction for such contributions can only be allowed if the amounts are deposited in the employees’ accounts in the relevant fund before the due date stipulated under the respective Acts.

In this case, the ITAT found that the appellant had deposited the employees’ contributions after the due date stipulated under the respective Acts. Since the delay in deposit was not disputed, the ITAT concluded that the disallowance made by the AO was justified. The Tribunal found no reason to interfere with the order of the Commissioner of Income-tax (Appeals), who had upheld the AO’s decision.

Conclusion and Final Judgment

The ITAT dismissed the appeal filed by MGI Infra Pvt Ltd, upholding the disallowance of Rs. 4,70,491/- made on account of delayed deposit of employees’ contributions to PF and ESI. The Tribunal’s decision was based on the Supreme Court’s ruling in the Checkmate Services case, which established that deductions under Section 36(1)(va) can only be allowed if the contributions are deposited within the due dates stipulated under the respective Acts.

This case underscores the importance of timely compliance with statutory requirements for depositing employees’ contributions to PF and ESI. The ruling serves as a reminder to employers that delays in such deposits can lead to disallowances and additional tax liabilities.

MGI Infra Pvt Ltd vs ACIT Circle-16(2), New Delhi | Assessment Year 2016-17 | Employee Contribution Dispute