Tribunal Upholds Disallowance of Employees' PF/ESI Contribution

The Tribunal upheld the disallowance of employees' contribution towards PF/ESI under Section 36(1)(va) during return processing. The decision was based on the requirement that such contributions must be paid before the prescribed due date to be eligible for deduction. The Tribunal referenced the Supreme Court's ruling in a similar case, affirming the distinction between employers' and employees' contributions. Consequently, the disallowance made by the CPC under Section 143(1)(a)(iv) was deemed justified, leading to the dismissal of the assessee's appeal.

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Issues Involved:
1. Sustenance of disallowance of employees' contribution towards PF/ESI under section 36(1)(va) of the Act.
2. Applicability of Section 143(1)(a)(iv) for disallowance during return processing.

Summary:

1. Sustenance of Disallowance of Employees' Contribution towards PF/ESI:
The assessee filed its return of income declaring a total income of Rs. 9,38,359/-. The return was processed by the CPC, leading to a disallowance of Rs. 8,87,262/- under Section 143(1)(a)(iv) due to the assessee's failure to pay employees' contributions to PF/ESI before the prescribed due date. The Ld. CIT(A) upheld the disallowance, stating that the employees' contribution can only be allowed as a deduction if paid within the prescribed due date under the relevant welfare funds. This position of law was affirmed by the amendment to the provision, which applies retrospectively.

2. Applicability of Section 143(1)(a)(iv) for Disallowance During Return Processing:
The assessee argued that the contribution was deposited before the filing of the return under Section 139(1) and cited a similar case for A.Y. 2019-20 where the appeal was allowed. However, the legal position changed after the Supreme Court's decision in Checkmate Services P. Ltd. & Ors. Vs. CIT & Ors., which upheld the distinction between employers' and employees' contributions under different provisions of the Income Tax Act. The Supreme Court ruled that the employees' contribution held in trust by the employer must be deposited by the due date under the relevant statute to prevent misuse. The Tribunal noted that the disallowance made by CPC while processing the return of income under Section 143(1)(a)(iv) was justified, as the audit report clearly indicated the delay in deposit beyond the due date.

Conclusion:
The Tribunal found that the matter is covered by the Supreme Court's decision in Checkmate Services P. Ltd. & Ors. Vs. CIT & Ors., which mandates that employees' contributions must be deposited before the due date stipulated under the respective Acts for deduction under Section 36(1)(va). The Tribunal upheld the adjustment under Section 143(1)(a) for the late deposit of employees' share of PF/ESI contributions, dismissing the assessee's appeal.

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