Disallowance for delayed deposit of PF/ESI prior to SC judgment deleted by ITAT

No disallowance for delayed deposit of PF/ESI prior to judgment of Supreme Court

Disallowance of u/s 36(1)(va) for delayed deposit of employees share of PF/ESI contribution prior to the judgment of Hon’ble Supreme Court being debatable, CPC could not have made adjustments u/s 143(1) – ITAT

In a recent judgment, the Hon’ble Raipur ITAT has set aside disallowance 36(1)(va) of the Income Tax Act, 1961 (the Act) for late deposit of PF for a period before the judgment of Hon’ble Supreme Court

ABCAUS Case Law Citation:
ABCAUS 3908 (2024) (03) ITAT

Important Case Laws relied upon by parties:
Satpal Singh Sandhu Vs. DCIT
Kalpesh Synthetics (P) Ltd. Vs. DCIT 
P.R. Packaging Service Vs. ACIT (2023) 
Gurmeet Singh Hora Vs. ACIT

In the instant case, the assessee had challenged the order passed by the Addl/JCIT(A) in confirming adjustment made by Centralized Processing Center (CPC)/AO under Section 143(1) of the Act on account of delayed payment of employee’s contribution to ESIC & other welfare fund by invoking section 36(1)(va) of the Act.

The assessee had filed his return of income for A.Y.2018-19. The CPC, Bengaluru vide its intimation issued u/s 143(1) of the Act made an addition u/s 36(1)(va) of the Act of the delayed deposit by the assessee of the employee’s share of contribution towards ESI/PF.

The First Appellate Authority placing reliance on the judgment of the Hon’ble Supreme Court in Checkmate Services Pvt. Ltd confirmed the addition made by the CPC.

Before the ITAT the question was whether or not disallowance u/s.36(1)(va) of the Act of the assessee’s claim for deduction of employee’s share of contribution towards PF/ESI paid beyond the date prescribed under the relevant law, but before the “due date” of filing of the latter’s return of income could have been validly carried out by the AO u/s. 143(1) of the Act prior to the judgment of the Hon’ble Supreme Court?

The Tribunal observed that the Co-ordinate Bench after exhaustive deliberations and drawing support from the order of other Benches had held that no disallowance of the delayed deposit of the employee’s share of contributions towards labour welfare funds could have been made in the hands of the assessee company while processing of its return of income u/s.143(1)(a) of the Act. Subsequently, the “Division Bench” of the Tribunal had reiterated the aforesaid view.

The Tribunal observed that prior to the judgment of the Hon’ble Apex Court in the case of Checkmate Service (P) Ltd. there were conflicting views of the Hon’ble High Courts and various benches of the Tribunal as to whether or not the delayed deposit of the employees share of contribution towards ESI/PF, i.e., paid beyond the time period prescribed under the relevant law but within the “due date” of filing return of income u/s.139(1) of the Act was allowable as a deduction. Considering the fact that the issue in hand prior to the judgment of the Hon’ble Apex Court was debatable, therefore, the same could not be brought within the meaning of the prima facie adjustments contemplated u/s.143(1)(a) of the Act. Although the issue, i.e., as to whether or not the delayed deposit of employees share of contribution towards ESI/PF is liable for disallowance u/s. 36(1)(va) is no more res-integra subsequent to the judgment of the Hon’ble Apex Court, but prior to the said judgment, the issue in hand being a debatable one, could not have been disallowed by way of an adjustment u/s. 143(1)(a) of the Act.

The Tribunal in view of the order passed by the Co-ordinate Bench wherein it was held that prior to the judgment of the Hon’ble Apex Court the delayed deposit of the employees share of contributions towards labour welfare funds could not have been disallowed by triggering the provisions of Section 143(1)(a) of the Act, set-aside the impugned order and vacated the addition /disallowance made by the AO u/s 36(1)(va) of the Act.

Download Full Judgment Click Here >>

• No protective addition required when additions is confirmed in hands of searched person – ITAT
• Limitation u/s 34 of Arbitration Act commences on disposal of application u/s 33 by Arbitral Tribunal – SC
• Case remanded in absence of finding if disallowance u/s 40A(3) covered by Rule 6DD
• For investment in share capital, source of investment is outside the control of the investee company
• ICAI issues revised Code of Ethics (13th edition)- Applicable Dates