Delhi HC Affirms disallowance of delayed Employees’ PF/ESI Contributions

Summary: In the case of  Woodland (Aero Club) Private Limited V/S Assistant Commissioner Of Income Tax, the Delhi High Court upheld the disallowance of ₹4.14 crore relating to delayed deposits of employees’ PF and ESI contributions under Section 143(1) for AY 2019–20. The firm deposited these contributions after the due dates prescribed under labour laws but before the income tax return filing due date under Section 139(1). It argued that such delays should not lead to disallowance. However, the Court ruled that employees’ contributions, governed by Section 36(1)(va), must be deposited strictly within the statutory deadlines, unlike employer contributions, which are covered under Section 43B. Citing the Supreme Court’s decision in Checkmate Services (P) Ltd., the Court clarified that Section 43B’s flexibility does not extend to employee contributions and that the 2021 amendment to Section 43B (Explanation 5) merely reiterates the existing law. The Court also found no merit in the argument that the issue was debatable or that the deduction was wrongly disallowed under Section 143(1). Further, a specific dispute over a due date falling on a national holiday (August 15) was also dismissed. The Delhi HC concluded that the Income Tax Department was within its rights to make such disallowance at the processing stage under Section 143(1), and that the ITAT correctly upheld the adjustment. Thus, delayed employee contribution payments remain non-deductible, even if made before the return filing deadline.