Employee contributions to ESI/PF cannot be disallowed if paid before income tax return filing deadline

ITAT Raipur ruled in favor of the assessee regarding delayed deposit of employee contributions towards ESI/PF. The tribunal held that AO cannot summarily disallow such contributions under section 143(1) when payments are made before the due date of filing income tax returns under section 139(1). Following precedent from Kalpesh Synthetics case, the tribunal found that delayed payment beyond statutory due date does not automatically trigger disallowance if payment occurs before return filing deadline. The addition made by AO was vacated.

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Issues Involved:

1. Disallowance of employer's contribution to ESIC invoking Section 43B.
2. Disallowance of delayed payment of employee's contribution to ESIC & other welfare funds invoking Section 36(1)(va).
3. Permissibility of adjustment made by AO/CPC under Section 143(1).

Summary:

1. Disallowance of employer's contribution to ESIC invoking Section 43B:

The assessee did not press this ground of appeal. Consequently, the ground of appeal regarding the disallowance of Rs.3,93,165/- on account of employer's contribution to ESIC invoking Section 43B was dismissed as not pressed.

2. Disallowance of delayed payment of employee's contribution to ESIC & other welfare funds invoking Section 36(1)(va):

The CIT(A) upheld the disallowance of Rs.24,03,630/- made by the AO under Section 36(1)(va) read with Section 2(24)(x) of the Act for the delayed deposit of employee's share of contributions towards ESI/PF. The CIT(A) relied on the decision of the Hon'ble Supreme Court in the case of Checkmate Services P. Ltd. The Tribunal noted that on the date of issuance of intimation under Section 143(1), there were divergent views regarding the allowability of such deductions. The Tribunal referenced the ITAT, SMC Bench, Raipur's decision in Satpal Singh Sandhu Vs. DCIT, which held that no such disallowance could be made while processing the return under Section 143(1)(a). The Tribunal concluded that the issue was highly debatable and could not be summarily disallowed by the CPC while processing the return. The Tribunal vacated the addition of Rs.24,03,630/- made by the AO.

3. Permissibility of adjustment made by AO/CPC under Section 143(1):

The Tribunal observed that the issue of delayed deposit of employee's share of contributions towards ESI/PF was highly debatable at the time of processing the return under Section 143(1). The Tribunal held that such adjustments could not be made summarily without hearing the parties. The Tribunal referenced several judicial pronouncements, including the ITAT, Mumbai's decision in Kalpesh Synthetics (P) Ltd. Vs. DCIT, which supported the view that no such disallowance could be made under Section 143(1)(a). The Tribunal vacated the addition made by the AO/CPC under Section 143(1).

Conclusion:

The Tribunal allowed the appeal of the assessee, setting aside the order of the CIT(A) and vacating the additions made by the AO/CPC under Section 143(1). The judgment was pronounced in open court on August 3, 2023.

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