Case Law Details
Tangerine Design Private Limited Vs CPC-ITR (Delhi High Court)
The tax appellate authority dismissed the appeal of Tangerine Design Private Limited (AY 2018-19) on the disallowance of late employee EPF/ESI contributions.
Summary
In a significant decision concerning the interpretation of tax deductions for employee welfare contributions, an appellate authority dismissed the appeal of Tangerine Design Private Limited for the Assessment Year (AY) 2018-19. The central issue before the authority was the disallowance of Rs 54,77,440, which represented the employee’s contribution to the Employees’ Provident Fund (EPF) and Employees’ State Insurance (ESI) that the company had deposited with a delay.
The disallowance was initially made under Section 143(1) of the Income Tax Act, 1961, during the automated processing of the company’s tax return. The company subsequently challenged this addition, first via a rectification request and then through an appeal to the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), which was also dismissed.
Assessee’s Claim and Prior Favourable View
Tangerine Design Private Limited contested the addition, arguing that the payments were only delayed by one or two days. In its submission before the lower appellate authority, the assessee contended that some delays were due to “technical glitches” and that in earlier years, similar additions had been deleted based on judicial precedents.
The company specifically relied on the principle established by the Delhi High Court in the case of AIMIL Limited vs. CIT ([2010] 188 Taxmann 265), which was further supported by the ruling in CIT vs SPL Industries. The principle set by the Delhi High Court at the time was highly favourable to the assessee. It effectively held that if the employee’s contribution to welfare funds was deposited by the employer before the due date for filing its Income Tax Return (ITR) under Section 139(1), the company would still be entitled to claim the deduction under Section 36(1)(va). This interpretation often equated the treatment of the employee’s contribution with the employer’s contribution (governed by Section 43B), allowing a grace period extending up to the ITR filing deadline. Relying on this, the company had successfully secured the deletion of a similar disallowance in its own case for AY 2015-16.
The Overriding Judicial Precedent
Despite the assessee’s reliance on past judicial relief and the Delhi High Court’s former view, the appellate authority rejected the appeal and upheld the disallowance. The rejection hinged entirely on a recent, definitive judgment from the highest court of the land, which had subsequently settled the controversial issue across the country.
The authority confirmed the disallowance by following the binding precedent set by the Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd. vs. CIT ([2022] 143 taxmann.com 178 (SC)). This landmark 2022 ruling effectively overruled the earlier favourable positions taken by various High Courts, including the Delhi High Court in AIMIL Limited.
The Final Holding and Legal Impact
The Supreme Court, in Checkmate Services, clarified the distinct legislative intent behind the provisions governing employees’ welfare contributions. It emphasized that the amount collected by the employer from the employee’s salary is held in trust and must be deposited by the statutory due dates specified under the respective welfare fund laws (e.g., the EPF & MP Act or ESI Act).
The Supreme Court confirmed that the deduction under Section 36(1)(va) is only available if the depossait is made within the time frame prescribed by the relevant specific statute. A delay in payment, even of a few days, means the employer forfeits the right to claim the deduction. The grace period provided under Section 43B (i.e., payment before the ITR filing due date) applies only to the employer’s contribution and not the employee’s contribution.
Finding that the issue had “attained finality” due to the binding Supreme Court judgment, the appellate authority found no infirmity in the lower authority’s decision. Consequently, the addition of Rs 54,77,440 was confirmed, and the appeal of Tangerine Design Private Limited was dismissed. This order re-affirms the strict interpretation of tax law regarding the timely deposit of employee contributions, making the finality of this issue clear for taxpayers across India.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
This appeal is filed by the assessee against the order of Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi dated 24.04.2025 in Appeal No. CIT(A), Delhi-9/10044/2020-21 arising out of the order passed u/s 143(1) of the Income Tax Act, 1961 dated 17.10.2019 for Assessment Year 2018-19.
2. In the present appeal assessee has challenged the order of Ld. CIT(A), NFAC wherein the Ld. CIT(A) confirmed the addition made on account of delayed payment of employee’s contribution towards ESI/EPF.
3. None appeared on behalf of the assessee.
4. On the other hand, the Sr. DR supports the order of the lower authorities.
5. Heard the Sr. DR and perused the materials available on record. IN the grounds of appeal taken by the assessee it is stated that the payments of the same were mostly debited from bank account of assessee prior to the due date and delay in PF/ESI Account was on account of some technical glitches which cannot be attributed to assessee. However, from the facts submission as made before the Ld. CIT(A), reproduced at page 3 of the appellate order, assessee submitted as under:
7. The return was processed at a taxable Income of Rs 14,33,76,890 after making an addition of Rs 54,77,440 on account of EPF – employee’s share late deposited by 1 or 2 days. This figure of EPF late deposited (Employee’s share) was as per the Tax Audit Report filed. Copy of Tax Audit Report filed is annexed as Annexure B.
8. The assessee filed a rectification request to re process the return based on judicial pronouncements by the Jurisdiction High court as well as in the assessee’s own case in an earlier year.
9. CPC reprocessed the return on 3rd June 2020 and the rectified Order was without any change as compared to the earlier Order. The assessee is in appeal before your Honor against the said Order of 3rd June 20. Copy of the Order is annexed as Annexure C.
10. A similar addition of R$ 6,92,849 u/s 36(1)(va) was done in the Assessment Order passed u/s 143(3) for assessment Year 2015-16. The CIT(A) in his order dated 29** June 2018 deleted the said addition relying on Delhi High court’s decision in the case of AIMIL. Limited, and CIT vs SPL Industries of Delhi High court. Copy of the Order of CIT(A) for Assessment Year 2015-16 is enclosed as Annexure D. The provision of law (Section 36(1)(va)) as applicable to Assessment Year 2018-19 is the same as was for assessment year 2015-16.
6. As the evident from the submission of the assessee that the payments were delayed by one or two days however, before us, claim of the assessee was that payments were made prior to the due date and there was technical glitches, therefore, the payments were shown delayed. Further before Ld. CIT(A) assessee stated that based on the decision of the Hon’ble Jurisdictional High Court in the case of AIMIL Limited vs. CIT reported in [2010] 188 Taxmann 265, disallowance made in its own case in AY 2015-16 was deleted by ld. CIT(A) therefore, it was requested for the deletion of the disallowance made. It is further seen that the Ld. CIT(A) has dismissed the appeal and confirmed the disallowance by following the order of Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd. [2022] 143 taxmann.com 178 (SC). As this issue has attained finality where the disallowance on delayed payments of employees’ contribution to ESI/EPF stood confirmed by the Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd. (supra) which order as observed above, is followed by Ld. CIT(A) to confirm the disallowance. Therefore, we find no infirmity in the order of Ld. CIT(A) which is hereby upheld. All the grounds of appeal taken by the assessee are dismissed.
7. In the result, the appeal of the assessee is dismissed.
Order pronounced in the open Court on 22.09.2025.
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