Facts of the Case

The assessee, T P Roy Chowdhury & Company Pvt. Ltd., filed its return of income for Assessment Year 2017-18 on 30.10.2017 declaring total income of ₹6,19,94,350. During assessment, the Assessing Officer noted from the tax audit report that employees’ contribution towards PF amounting to ₹8,81,926 and ESI amounting to ₹1,12,067 were deposited after the statutory due date. Accordingly, a total sum of ₹9,93,993 was disallowed and added back to income under Section 36(1)(va) read with Section 2(24)(x) of the Income-tax Act. The CIT(A) dismissed the assessee’s appeal by order dated 24.04.2025.

The assessee thereafter filed a rectification application under Section 154 pointing out that out of the alleged delayed amount, a sum of ₹2,97,313 relating to PF/ESI was due on 15.08.2016, which was a national holiday, and the payment was made on the immediately following working day, i.e. 16.08.2016. The rectification application was rejected by the CIT(A), leading to the appeal before the Tribunal.

Issues Involved

Whether employees’ contribution towards PF and ESI deposited on the next working day when the statutory due date falls on a national holiday is allowable as deduction under Section 36(1)(va), and whether rejection of rectification on this issue was justified.

Petitioner’s Arguments

The assessee contended that the delay of one day occurred solely because the statutory due date, 15.08.2016, was a national holiday, and the contribution was deposited on the immediately following working day. It was argued that such payment is deemed to be within time by virtue of Section 10 of the General Clauses Act. Reliance was placed on the decision of the Delhi High Court in M/s Aero Club vs. ACIT and the judgment in PCIT-7 vs. Pepsico India Holding Pvt. Ltd., where similar payments made on the next working day due to a national holiday were held to be allowable.

Respondent’s Arguments

The Revenue supported the orders of the lower authorities and argued that the employees’ contribution was deposited after the statutory due date and therefore was rightly disallowed under Section 36(1)(va). However, no specific rebuttal was made to the factual position regarding the national holiday.

Court Order / Findings

The ITAT Kolkata examined the facts and noted that the disputed amount of ₹2,97,313 relating to PF and ESI was deposited on 16.08.2016 because the due date, 15.08.2016, was a national holiday. The Tribunal relied on the decision of the Delhi High Court in Aero Club vs. ACIT, which in turn followed PCIT-7 vs. Pepsico India Holding Pvt. Ltd., holding that where the due date falls on a national holiday, payment made on the immediately succeeding working day is to be treated as payment within time by applying Section 10 of the General Clauses Act. Applying the same principle, the Tribunal held that the assessee was entitled to deduction of the said amount and that the disallowance was unsustainable.

Important Clarification

The Tribunal clarified that when the statutory due date for deposit of employees’ contribution towards PF or ESI falls on a national holiday, deposit made on the next working day is deemed to be within the prescribed time by virtue of Section 10 of the General Clauses Act. Such payment cannot be treated as delayed for the purpose of disallowance under Section 36(1)(va).

Final Outcome

The appeal filed by the assessee was allowed. The disallowance of ₹2,97,313 made towards employees’ contribution to PF and ESI was directed to be deleted, and consequential relief was granted to the assessee for Assessment Year 2017-18.

Source Link - https://itat.gov.in/public/files/upload/1767683464-VrrRFQ-1-TO.pdf

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.