Rajesh Maru Vs NFAC (ITAT Indore)
Employees’ PF/ESI Contribution: Due Date Linked to Actual Salary Payment Sent Back for Verification
The controversy
The Indore Bench of the Income Tax Appellate Tribunal considered whether employees’ contributions towards PF and ESI, treated as belated by the Assessing Officer, could qualify for deduction where the due date was calculated with reference to the month of actual payment of salary, rather than the month to which the salary related.
The appeals also involved the deductibility of interest and other charges on delayed PF/ESI remittances and an addition arising from a mismatch between business receipts and Form 26AS.
The assessee, an individual carrying on the business of manpower supply, challenged the additions sustained by the first appellate authority.
Actual salary payment was the basis of the limited claim
The assessee accepted that certain PF/ESI contributions had been deposited belatedly. However, he disputed the treatment of ₹11,54,053 for AY 2022-23 and ₹17,60,258 for AY 2023-24 as delayed payments.
His argument was that the salaries concerned had actually been disbursed in the following month. Consequently, the due date for depositing the related contributions should be reckoned as the 15th day of the month following the month of actual salary payment.
Detailed month-wise statements were placed before the Tribunal to demonstrate that, on this basis, the disputed contributions had been deposited within time. Thus, the claim was confined to identifying the correct statutory due date for particular payments.
Tribunal followed the approach in Payal Enterprises
The Tribunal referred to Payal Enterprises v. DCIT, ITA No. 1203/Kol/2024, dated 25 November 2024, which examined paragraph 38 of the Employees’ Provident Funds Scheme, 1952.
In that decision, salary relating to October 2020 had been paid in November 2020. The Kolkata Bench treated 15 December 2020 as the relevant due date and held that the contribution deposited on 17 November 2020 was within time, subject to verification of the supporting documents.
Drawing upon that reasoning, the Indore Bench considered the assessee’s claim that the disputed contributions were timely when measured against the month of actual salary disbursement.
However, the Tribunal did not grant an unconditional deduction. It restored the limited amounts of ₹11,54,053 and ₹17,60,258 to the jurisdictional Assessing Officer for verification.
The Assessing Officer was directed to examine the actual dates of salary payment, the PF/ESI deposit challans and the detailed monthly statements, after giving the assessee a reasonable opportunity of being heard. The grounds were therefore allowed for statistical purposes to this limited extent.
Remaining delayed contributions remained disallowed
For the balance contributions, the Tribunal applied the Supreme Court’s decision in Checkmate Services Pvt. Ltd. v. CIT and sustained the disallowance.
The amounts remaining disallowed were ₹58,71,955 for AY 2022-23 and ₹39,64,916 for AY 2023-24.
The distinction is material: the Tribunal did not permit deduction of contributions accepted to be late. The limited remand concerned payments for which the assessee disputed the very determination of the statutory due date.
Interest and other charges: Compensatory character not established
For AY 2023-24, the assessee also claimed deduction of ₹8,28,071 towards interest and other charges on delayed PF/ESI remittances, contending that the payments were not penal.
The Tribunal upheld the disallowance. Referring to Prakash Cotton Mills Pvt. Ltd. v. CIT, 201 ITR 684 (SC), it recognised that compensatory interest may qualify for deduction. However, it found that the assessee had failed to establish the compensatory nature of the amounts through cogent material.
Accordingly, the disallowance was sustained. The finding must be read with this evidentiary limitation, rather than as a universal proposition that every interest payment connected with delayed statutory remittance is necessarily penal.
Form 26AS mismatch did not establish taxable income
The Assessing Officer had separately added ₹51,261 as undisclosed business receipts for AY 2022-23 because of a mismatch with Form 26AS.
The assessee explained that ₹49,400 represented a mediclaim reimbursement, while ₹1,307 and ₹554 related to credit notes issued by two entities.
Accepting the explanation, the Tribunal held that the amounts represented the reimbursement and credit-note adjustments described in the proceedings and were not income on the facts before it. The addition was therefore deleted.
Author’s comments
The practical significance of this order lies in the verification of the due date itself. A monthly PF/ESI reconciliation should capture the salary period, actual disbursement date and contribution deposit date. That evidence becomes crucial where the assessee advances the interpretation accepted for examination in this order.
At the same time, this is a limited remand, not a final allowance of the disputed contributions. Likewise, interest, damages and other statutory charges should be identified separately and supported by the relevant demand orders so that their precise character can be examined.
Cases Discussed
- Payal Enterprises v. DCIT, ITA No. 1203/Kol/2024, dated 25.11.2024 — actual salary-payment month and verification of contribution dates.
- Checkmate Services Pvt. Ltd. v. CIT, Civil Appeal No. 28 of 2016, dated 12.10.2022 — belated employees’ contributions.
- Prakash Cotton Mills Pvt. Ltd. v. CIT, 201 ITR 684 (SC) — compensatory versus penal charges.
- Kanoi Paper & Industries Ltd. — mentioned in quoted Payal Enterprises decision.
- The Master Polishers — mentioned in quoted Payal Enterprises decision.
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT INDORE
Both appeals have been filed by the assessee against the order dated 23.07.2025 & 29.07.2025 passed by the National Faceless Appeal Centre/-Addl/JCIT (A)- Delhi, [hereinafter referred to as “the ld. CIT(A)”] for Assessment Years 2022-23 & 2023-24 arising out of assessment order framed under section 143(3) read with section 144B of the Income-tax Act, 1961 (“the Act”).
2. The assessee is an individual engaged in doing the business of man power supply and filed his return of income on 31.10.2022 & 30.10.2023 declaring total income of Rs.87,31,170/- (subsequently revised on 26.12.2022 at Rs.17,05,170/-) & Rs.60,45,260/- for the assessment Years 2022-23 & 2023-24. During the course of assessment proceedings u/s 143(3) the Ld. AO made the addition and assessed total income for A.Y.2022-23 Rs.88,70,335/- on 26.03.2024 for the A.Y.2023-24 Rs.1,25,98,505/- on 06.03.2025.
3. Aggrieved by the assessment order the assessee preferred the appeals before the Ld. CIT(A). The Ld. CIT(A) confirmed the action of the AO. Therefore, the assessee has preferred the appeals before this tribunal.
4. Before us, the assessee has raised following grounds:
ITANo.838/Ind/2025
“1. On the facts and circumstances of the case and applicable law, Ld. CIT(A) erred in sustaining the assessment order passed by Ld. AO which is contrary to the material on records and provisions of the Act, unjust and bad in law.
2. On the facts and circumstances of the case and applicable law, 21,71,149 Ld. CIT(A) sustaining the disallowance made by Ld. AO of Rs. 70,25,008 towards late payment of employees contribution towards PF and ESIC without considering the fact that the payments have been made in accordance to the provisions laid down under the applicable provisions.
3. On the facts and circumstances of the case and applicable law, Ld. CIT(A) erred in sustaining the addition made by Ld. AO of Rs. 51,261 as undisclosed business receipts.
4. On the facts and circumstances of the case and applicable law, NA Ld. CIT(A) erred in sustaining the disallowance and/or addition made by Ld. AO without considering the submissions made in proper perspective.
5. The appellant craves leave to add, amend, alter otherwise raise any other ground of appeal.”
ITANo.839/Ind/2025
“1.On the facts and circumstances of the case and applicable law NA Ld. CIT(A) erred in sustaining the assessment order passed by Ld. AO which is contrary to the material on records and provisions of the Act, unjust and bad in law.
2. On the facts and circumstances of the case and applicable law Ld. CIT(A) sustaining the disallowance made by Ld. AO of Rs. 57,25,174 towards late payment of employees contribution towards PF and ESIC without considering the fact that the payments have been made in accordance to the provisions laid down under the applicable provisions.
3. On the facts and circumstances of the case and applicable law Ld. CIT(A) erred in sustaining the disallowance u/s 37 of interest and other charges on ESIC and PF by Ld. AO of Rs. 8,28,071 as.
4. On the facts and circumstances of the case and applicable law. NA Ld. CIT(A) erred in sustaining the disallowance and/or addition made by Ld. AO without considering the submissions made in proper perspective
5. The appellant craves leave to add, amend, alter or NA otherwise raise any other ground of appeal.”
5. So far as grounds raised in respect of EPF and ESIC contributions are the payments were made late in some cases only. In this regard Ld. Counsel for the assessee submitted that the payment in respect of EPF and ESIC were made late in some cases but in some cases the same were not made late because as per section 38 of the PF Act 1952 the due date is to be reckoned from the month in which wage/salary is actually paid and not from the month for which the salary is due, therefore, the ld. AR submitted before us that the assessee is seeking the relief of Rs.11,54,053/- out of Rs.70,26,008/- for A.Y.2022-23 and Rs.17,60,258/- out of Rs.57,25,174/- for assessment year 2023-24.
6. On the other hand, Ld. Sr. DR relied upon the order of the Ld. CIT(A) & of Ld. AO
7. We have heard the rival submissions and perused the material available on record. Having gone through the detailed month wise statements of payments of EPF and ESIC, for both the assessment years, we find that in view of the decision of Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd. vs. CIT-1, Civil Appeal No.28 of 2016 dated 12.10.2022, the expenditures at Rs.58,71,955/- out of Rs.70,26,008/- and Rs.39,64,916/- out of Rs. 57,25,174/- deserve to be disallowed u/s 37(1) of the Act as the assessee had made the statutory violation.
8. However, Ld. Counsel for the assessee demonstrated before us through the detailed month wise statements of the payments of EPF and ESIC, for both the assessment years, that in respect of the payments of Rs.11,54,053/- out of Rs.70,26,008/- & Rs.17,60,258/- out of Rs.57,25,174/- for the assessment years under question, respectively, the disbursements were made in the next month in place of due month therefore, the due date of deposit was extended till 15th day of the subsequent month of the actual payment month therefore, these payments were within time and therefore, are allowable u/s 36(1)(va) of the Act. Ld. Counsel also relied upon in support of its claim the decision of the coordinate Bench in the case of Payal Enterprises vs. DCIT in ITANO.1203/Kol/2024, dated 25.11.2024 wherein it has been held as under:
“6.1. We have considered the submission made In this respect, Section 38 of The Employees’ Provident Funds Scheme, 1952 is reproduced as under:
“38. Mode of payment of contributions
(1) The employer shall, before paying the member his wages in respect of any period or part of period for which contributions are payable, deduct the employee’s contribution from his wages which together with his own contribution as well as an administrative charge of such percentage [of the pay (basic wages, dearness allowance, retaining allowance, if any, and cash value of food concessions admissible thereon) for the time being payable to the employees other than excluded employee and in respect of which provident fund contribution payable, as the Central Government may fix. He shall within fifteen days of the close of every month pay the same to the fund electronic through internet banking of the State Bank of India or any other Nationalized Bank) for through PayGov platform or through scheduled banks in India including private sector banks authorized for collection on account of contributions and administrative charge: Provided that the Central Provident Fund Commissioner may for reasons to be recorded in writing, allow any employer or class of employer to deposit the contributions by any other mode other than internet banking.
(Emphasis supplied)
6.2. Thus, as per the Scheme of EPF, the liability of deposit of EPF arises on payment of salary/wages to the employee and as the disbursement is made in the next month and was made in the month of November, 2020, the due date of deposit was 15th December, 2020 and therefore, the payment made on 17.11.2020 was within time and, therefore, allowable u/s 36(1)(va) of the Act. Similar finding was also made by the Coordinate Benches in the case of Kanoi Paper & Industries Ltd. (supra) and The Master Polishers (supra). Hence, Ground nos. 2 & 3 of the appeal are allowed and the Ld. AO is directed to allow deduction of Rs. 6,09,233/- and 46,787/- for EPFO and ESIC respectively relating to the payment of salary/wages for the month of October, 2020 after receipt and verification of required documents from the assessee in support of the claim that the payment of wages/salary was made in the month of November for the salary/wages due for the month of October, 2020 and delete the addition made to this extent.”
9. On consideration of above facts & Precedent case laws and detailed chart of month wise payments of salary alongwith relevant documents, it would be in the interest of the justice and fair play that the same be considered at the level of the Ld. JAO. Hence, grounds raised in both the appeal in respect of this limited extent Rs.11,54,053/- for A.Y.2022-23 and Rs.17,60,258/- for A.Y.2023-24 are allowed for statistical purpose. The Ld. JAO is directed to verify the same with the actual payment wages /salary and challan of deposit with PF & ESIC after considering the above said facts and circumstances, documents, detailed chart in the light of the aforesaid judicial pronouncements after affording the assessee a reasonable opportunity of being heard.
10. So far as ground no.3 raised in ITANo.839/Ind/2025 in respect of disallowance u/s 37 of interest and other charges on ESIC and PF at Rs.8,28,071/- is concerned, the facts are that the assessee had claimed interest and charges paid on delayed PF/ESIC remittances as deductible business expenditure u/s 37(1) of the Act claiming that the same are not penal in nature. However, the Ld. AO disallowed the same, therefore the assessee went in appeal before the Ld. CIT(A) and Ld. CIT(A) also confirmed the action of the AO. Therefore, the assessee is before this Tribunal.
11. Before us, Ld. Counsel for the assessee submitted that interest and charges paid on delayed PF & ESIC remittances were required to be allowed being not penal in nature. On the other hand, Ld. Sr. DR relied upon the order of the Ld. CIT(A).
12. We have heard the rival submissions and perused the material available on record. We find that the AO concluded that such charges stems from the failure to meet the statutory obligations under the PF/ESIC Acts and hence are not laid out wholly and exclusively for the purpose of business. We are of the view that interest or charges imposed due to default or delay in compliance with statutory obligations are generally construed as penal in nature and hence not allowable. Further the decision of the Hon’ble Supreme Court in the case of Prakash Cotton Mills Pvt. Ltd. vs. CIT (201 ITR 684) is against the assessee and subsequently reiterated in various cases, only compensatory interest may be allowable which the assessee is not able to demonstrate before us, basis any cogent grounds. Therefore, we do not find any reason to interfere with the order of the Ld. CIT(A). Accordingly, the order of the Ld. CIT(A) on this issue is confirmed. Thus, this ground raised by the assessee is dismissed.
13. So far as ground no.3 raised in ITANo.838/Ind/2025 in respect of undisclosed business receipts at Rs.51,261/- is concerned the facts are that the Ld. AO had made an addition of Rs.51,261/- on the basis of mismatch between receipts declared in the return and amounts reflected in form no.26AS. Therefore, the assessee went in appeal before the Ld. CIT(A) and Ld. CIT(A) also confirmed the action of the AO in the absence of the unverifiable documents and no proper reconciliation. Therefore, the assessee is before this Tribunal.
14. Before us, Ld. Counsel for the assessee submitted that Rs.49,400/- were reimbursements of mediclaim from Auditya Sun Life AMC Limited, Rs.1307/- and Rs.554/- pertain to credit notes issued by Raj Medisafe India Ltd. Bergweff Organic India Pvt. Ltd., respectively. On the other hand, Ld. Sr. DR relied upon the order of the Ld. CIT(A).
15. We have heard the rival submissions and perused the material available on record. We find that the Rs.51,261/- are related to reimbursement of Mediclaim from the Insurance Company and credit notes, which are required to be reversed, issued by Raj Medisafe India Ltd. Bergweff Organic India Pvt. Ltd., and in our view the same are not liable to tax as the same are not in the nature of income. Therefore, we do not find any reason to sustain the findings of Ld. CIT(A) on this issue. Accordingly, we delete the addition of Rs.51,261/-. Thus, this ground raised by the assessee is allowed.
16. In the result, the Appeals of the assessee are partly allowed.
Order pronounced in the open court on 12 /10/2026.
