Timely Employee Fund Deposits Vital: ITAT Upholds Disallowance

The appeal involved the disallowance of delayed payment of employee contributions to PF and ESI under section 43B of the Income-tax Act for the assessment year 2018-19. The ITAT upheld the disallowance, emphasizing the necessity of depositing employees' contributions before the due date for deduction under section 36(1)(va). The decision aligned with the Supreme Court's ruling in a similar case, emphasizing timely remittance of employees' contributions to welfare funds for claiming deductions under section 43B. The appeal was dismissed, affirming the order of the CIT(Appeals) regarding the disallowance of delayed employee contributions.

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Issues: Disallowance of delayed payment of employee contribution to Employees State Insurance and Provident Fund under section 43B r.w.s. 36(1)(va) of the Income-tax Act, 1961.

Analysis:
1. The appeal concerns the disallowance of delayed payment of employee contribution to PF and ESI under section 43B r.w.s. 36(1)(va) of the Act for the assessment year 2018-19.

2. The assessee, an individual, declared income from business or profession and claimed a refund. The Assessing Officer disallowed Rs. 75,57,462 under section 43B towards delayed remittance contribution to PF and ESI. The CIT(Appeals) partially allowed relief towards employers' contribution but confirmed the disallowance towards employees' contribution.

3. The key contention was whether the payment of employee contribution, though belated, before the due date of filing the return of income u/s. 139(1) of the Act, was allowable u/s. 43B. The Hon'ble Supreme Court's decision in the case of Checkmate Services (P.) Ltd. Vs CIT-1 clarified the distinction between employer's and employees' contributions, emphasizing the necessity of depositing employees' contributions before the due date for deduction under section 36(1)(va).

4. Following the Supreme Court's ruling, the ITAT held that employees' contribution to PF and ESI must be remitted before the due date under relevant employee welfare legislation for it to be allowable under section 43B. Consequently, the appeal by the assessee was dismissed, upholding the order of the CIT(Appeals).

5. The decision reaffirms the importance of timely remittance of employees' contributions to welfare funds for claiming deductions under section 43B, aligning with the legislative intent to ensure timely payments and prevent employers from retaining such amounts for extended periods.

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