Facts of the Case

The assessee, Harbir Singh, filed an appeal before the Income Tax Appellate Tribunal (ITAT), Delhi Bench, against the order passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC) dated 27.12.2022 for Assessment Year 2019-20.

The dispute arose from an intimation issued under Section 143(1) of the Income Tax Act, 1961 by the DCIT, CPC Bangalore, wherein a disallowance of ₹43,97,361 was made on account of late deposit of employees’ contribution to EPF and ESIC.

The assessee challenged the adjustment made under Section 36(1)(va) read with Section 43B of the Act. The CIT(A) upheld the disallowance relying on the judgment of the Supreme Court in Checkmate Services Pvt. Ltd. vs. CIT.

Aggrieved by the appellate order, the assessee preferred an appeal before the Income Tax Appellate Tribunal, Delhi.

Issues Involved

  1. Whether employees’ contribution to PF/ESIC deposited after the prescribed due date under the respective labour laws is allowable as deduction under Section 36(1)(va) of the Income Tax Act.
  2. Whether the due date for deposit of employees’ contribution should be determined with reference to the month in which salary is actually disbursed rather than the month to which the salary relates.
  3. Whether the adjustment/disallowance for late deposit of employees’ contribution can be made in proceedings under Section 143(1) of the Act. 

Petitioner’s Arguments

The assessee contended that the due date for deposit of employees’ contribution to PF and ESIC should be reckoned from the month in which the salary is actually disbursed and not the month to which the salary pertains.

It was further submitted that in the assessee’s own case for Assessment Year 2018-19 (ITA No. 540/Del/2023), the Coordinate Bench of the Tribunal had already remanded the matter to the Assessing Officer to determine the correct due date based on the actual date of salary disbursement.

Therefore, the assessee requested that the matter be restored to the Assessing Officer for fresh examination in line with the earlier order passed in the assessee’s own case. 

Respondent’s Arguments

The Revenue relied on the decision of the Supreme Court in Checkmate Services (P) Ltd. vs CIT, which clarified that employees’ contribution to PF/ESIC must be deposited within the due date prescribed under the respective labour laws, failing which the deduction cannot be allowed under Section 36(1)(va).

The Revenue also supported the findings of the CIT(A) that the disallowance was valid and justified under the provisions of the Income Tax Act.

Court Findings

The Tribunal observed that a similar issue had arisen in the assessee’s own case for Assessment Year 2018-19, where the matter had been remanded to the Assessing Officer to determine the correct due date based on the actual date of salary disbursement.

The Tribunal also referred to the decision of the Coordinate Bench in Sentinel Consultants Pvt. Ltd. vs ACIT, wherein it was observed that the month in which salary is actually disbursed becomes relevant for determining the due date for deposit of employees’ contribution under the respective statutes.

Since this aspect had not been examined by the Assessing Officer or the CIT(A), the Tribunal considered it appropriate to restore the matter to the Assessing Officer for factual verification and redetermination.

Court Order

The Income Tax Appellate Tribunal set aside the intimation order and restored the issue to the file of the Assessing Officer for fresh adjudication.

The Assessing Officer was directed to examine the factual details regarding the actual disbursement of salary and determine whether the employees’ contribution to PF/ESIC was deposited within the due date calculated from the end of the month in which salary was actually paid.

The Assessing Officer shall pass a fresh order in accordance with law after providing adequate opportunity of hearing to the assessee.

Accordingly, the appeal of the assessee was allowed for statistical purposes.

Important Clarification

The Tribunal clarified that the Assessing Officer must verify the factual matrix relating to the date of salary disbursement before computing any disallowance under Section 36(1)(va).

If it is found that the employees’ contribution to PF/ESIC was deposited within the statutory due date calculated from the month of actual salary disbursement, the assessee may be entitled to relief.

Sections Involved

  • Section 36(1)(va) – Deduction of employees’ contribution to PF/ESIC
  • Section 43B – Certain deductions allowed on actual payment basis
  • Section 143(1) – Processing of return and adjustments

Link to download the order -  https://itat.gov.in/public/files/upload/1703225495-Harbir%20Singh,%20ITA%20No.%20541.pdf

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