No disallowance of late deposit of PF/ESI to be made without giving opportunity

No disallowance of late deposit of PF/ESI can be made without affording opportunity to assessee to show that the said payments were made within time

In a recent judgment, Hon’ble Allahabad High Court remanded disallowance of late deposit of PF/ESI made without affording opportunity to assessee to show that the said payments were made within time.

ABCAUS Case Law Citation:
4189 (2024) (08) abcaus.in HC

The issue on allowability of employee’s contribution to PF/ESI has been settled by the Hon’ble Supreme Court in the case of Chekmate Services P. Ltd vs CIT. The full bench of the Apex Court held that no deduction is allowable under section 36(1)(va) read with section 43B of the Income Tax Act, 1961 (the Act) if such payments are not made within due dates prescribed under the respective Statutes.

On the strength of the above judgment of the Hon’ble Supreme Court, all the pending cases were dismissed at various forums where there was a delay in deposit of PF/ESI from due dates prescribed under the respective Statutes.

In the instant case, the appellant assessee had challenged the order of the Income Tax Appellate Tribunal, Circuit Bench, Varanasi in upholding the order of the CIT(A) confirming the intimation issued by CPC u/s 143(1).

Previously an adjustment to the returned income was made by the CPC Bengaluru under section 143(1)(a) making a disallowance u/s 36(1)(va) of the Act for deduction claimed for PF/ESI payments on the ground that the said payments were not made within due dates prescribed under the respective Statutes.

The main contention raised by the appellant assessee was the issue of violation of principles of natural justice in not allowing opportunity of hearing to show that the said payments were made within time.

According to the assessee, the impugned addition to income should have been done after granting the petitioner opportunity of hearing to show that the said payments were made within time. Accordingly, he submitted that a notice under Section 143(3) should have been issued to the petitioner before the entire exercise was carried out.

The assessee further submitted that both CIT(A) and the ITAT did not take into consideration this issue and the Tribunal merely reiterated the said position on the ground that the issue of availability deduction under Section 36(1)(va) of the Act was covered by the Hon’ble Supreme Court Judgment.

The Hon’ble High Court observed that from orders passed by the appellate authority and the Tribunal, it was crystal clear that none of the authorities had given any specific finding with regard to whether there was delay in depositing the contributions to Provident Fund and ESI.

In light of the above, their lordship opined that that there had been violation of principles of natural justice and the petitioner had not been allowed to put his case before any of the authorities below.

Accordingly, the Appeal was allowed. The matter was remanded and the assessing officer was directed to issue a notice under Section 143(3) and thereafter follow the procedure lay out in the Act.

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