Case Law Details
Gurdev Singh Vs ITO (ITAT Delhi)
The Income Tax Appellate Tribunal (ITAT) Delhi bench heard an appeal filed by Gurdev Singh against the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, dated 6 June 2024, for Assessment Year (AY) 2020–21.
The only issue raised in the appeal was the disallowance of ₹12,91,486 under Sections 36(1)(va) read with Section 2(24)(x) and Section 43B of the Income Tax Act, 1961, for the delayed payment of employees’ contributions to the Employees’ State Insurance Corporation (ESIC) and Employees’ Provident Fund (EPF).
The assessee’s counsel, Shri Hemant Jain, submitted that the Centralized Processing Centre (CPC) processed the return of income under Section 143(1) on 15 February 2021. He argued that adjustments under Section 143(1)(a)(iv) can be made only for disallowances that are specifically indicated in the tax audit report but not accounted for in the return of income. In this case, the tax auditor had not made any such recommendation. The auditor had merely disclosed the due dates and actual dates of deposit of employees’ contributions under ESIC and EPF without suggesting any disallowance.
The counsel further contended that the CPC disallowed the sum solely based on the observations in the auditor’s report, even though all employee contributions were deposited before the due date for filing the return under Section 139(1). He relied on several tribunal decisions where similar disallowances were deleted and argued that the decision of the Supreme Court in Checkmate Services (P.) Ltd. v. CIT [143 taxmann.com 178 (SC)] should not apply, as that case pertained to an assessment under Section 143(3), not a summary processing under Section 143(1).
The Departmental Representative, Shri Sanjay Kumar, defended the CIT(A)’s order and requested dismissal of the appeal, stating that the disallowance was consistent with the settled legal position.
After hearing both parties, the Tribunal observed that the issue was confined to whether delayed deposits of employees’ contributions to EPF and ESIC could be allowed as a deduction under Section 36(1)(va). It was undisputed that the assessee had deposited the employees’ contributions after the statutory due dates prescribed under the respective Acts.
The Tribunal referred to the Supreme Court’s ruling in Checkmate Services (P.) Ltd. v. CIT, wherein it was categorically held that employees’ contributions to provident fund or ESI made beyond the due dates stipulated under the respective welfare legislations are not deductible under Section 36(1)(va), even if paid before the due date for filing the return of income.
Rejecting the assessee’s argument, the Tribunal held that the applicability of the Checkmate Services decision does not depend on whether the assessment was framed under Section 143(1) or 143(3). The Tribunal emphasized that the Apex Court’s interpretation of the law applies uniformly, irrespective of the mode of assessment. Thus, where there is a delay in the deposit of employees’ share of contributions under EPF or ESIC, the disallowance under Section 36(1)(va) read with Section 43B must be made.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi (hereinafter referred to as ‘the CIT(A)’) dated 06.06.2024, for assessment year 2020-21.
2. Shri Hemant Jain, appearing on behalf of the assessee submits that the solitary issue raised in appeal is against disallowance of Rs.12,91,486/- u/s.36(1)(va) r.w.s 2(24)(x) and section 43B of the Income Tax Act, 1961(hereinafter referred to as ‘the Act’) for late payment of employees contribution to ESIC and EPF. The ld. Counsel for the assessee submits that return of income filed by the assessee was processed by Centralized Processing Centre (CPC) u/s. 143(1) of the Act on 15.02.2021. Adjustments u/s.143(1)(a)(iv) of the Act can only be made for expenses or claims specifically flagged for disallowance in Audit Report but not accounted for in return. In the instant case in Auditor’s Report there was no mention of delayed contributions under ESIC and EPF. Therefore, adjustment made by the CPC based on Audit Report u/s.143(1)(a)(iv) of the Act is unjustified. In Auditor’s Report the due dates and actual payment dates of employee’s contribution towards Provident Fund were mentioned without recommending any disallowance. The CPC made disallowance u/s. 36(1)(va) of the Act merely on the basis of aforesaid observations in the Auditor’s Report. The ld. Counsel for the assessee fairly stated that contribution towards ESIC and EPF though deposited after due date provided under respective Acts, were made before the due date for filing return of income u/s. 139(1) of the Act. In support of his contentions, he placed reliance on various Tribunal decisions and prayed for deleting disallowance. Further, referring to the decisions of Checkmate Services P. Ltd. vs. CIT 143 taxmann.com 178 (SC). He submitted that the said decision was rendered in the context of assessment framed u/s. 143(3) of the Act and not u/s. 143(1)(a) of the Act. Hence, law laid down in the aforesaid decision would not apply to the facts of instant case.
3. Shri Sanjay Kumar, representing the department vehemently defended the impugned order and prayed for dismissing appeal of the assessee.
4. Both sides heard. The short issue in appeal by the assessee is against disallowance made u/s.36(1)(va) of the Act in respect of delay in deposit of employee’s contribution to EPF/ESIC during the period relevant to assessment year under appeal. It is an admitted fact that during relevant period, the assessee had deposited employee’s contribution towards EPF/ESIC beyond the due dates as specified under relevant Acts. The Hon’ble Apex Court in the case of Checkmate Services P. Ltd. (supra) unequivocally held that employee’s contributions towards PF and ESIC deposited beyond the due date as mandated under respective Acts are liable to be disallowed under provisions of section 36(1)(va) of the Act. Hence, in light of the law expounded by Hon’ble Apex Court, I find no error in impugned order.
5. The ld. Counsel for the assessee in an attempt to distinguish the law expounded by Hon’ble Apex Court in the case of Checkmate Services P. Ltd. (supra) contended that the decision in the case of Checkmate Services P. Ltd.(supra) has been rendered where the assessment was made u/s. 143(3) of the Act, whereas in case of the assessee the assessment has been completed u/s. 143(1) of the Act. I find aforesaid argument of the assessee without merit. The law explained by Hon’ble Apex Court with regard to deposit of employee’s contributions to ESIC/EPF does not distinguish as to whether the assessment is framed u/s. 143(3) or 143(1) of the Act. Once there is delay in deposit of employee’s share of contribution under EPF/ESIC vis a vis due dates specified under the relevant Acts, disallowance u/s.36(1)(va) r.w.s 43B of the Act has to be made on such delayed deposits.
6. In light of above observations appeal of the assessee is dismissed being devoid of any merit.
Order pronounced in the open court on Wednesday the 12th day of February, 2025.
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