Tribunal allows Assessee's appeals on PF & ESI disallowance, limits to employees' contributions.

The Tribunal partly allowed the Assessee's appeals regarding the disallowance of Provident Fund (PF) and Employee State Insurance (ESI) payments. The disallowance was restricted to the employees' contributions for the Assessment Years 2018-19 and 2019-20, in accordance with the interpretation of Section 36(1)(va) by the Hon'ble Supreme Court. The Tribunal directed the Assessing Officer to disallow only the employees' contributions, amounting to Rs. 6,74,509/- for A.Y. 2018-19 and Rs. 7,88,835/- for A.Y. 2019-20.

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Issues Involved:

1. Disallowance of Provident Fund (PF) and Employee State Insurance (ESI) payments under Section 36(1)(va) of the Income-tax Act, 1961.
2. Adjustment under Section 143(1) of the Income-tax Act, 1961.

Summary:

Issue 1: Disallowance of PF and ESI Payments

The Assessee challenged the disallowance of Rs. 13,73,999/- for the Assessment Year (A.Y.) 2018-19, which was made on account of late payment of employee contributions towards PF and ESI. The Assessee argued that the payments, although not made within the statutory due date, were made before the due date of filing the return of income under Section 139(1). However, the Learned Commissioner of Income Tax (Appeals) [Ld.CIT(A)] upheld the disallowance, citing various judicial pronouncements and the provisions of Section 143(1)(a)(iv) of the Income-tax Act.

The Hon'ble Supreme Court in "Checkmate Services Private Limited vs. CIT" clarified that Section 36(1)(va) specifically deals with employees' contributions and mandates that these contributions must be deposited on or before the due date specified in the respective Acts. The Supreme Court emphasized the distinction between employers' and employees' contributions, noting that employees' contributions are held in trust by the employer and must be deposited timely to qualify for deductions.

Issue 2: Adjustment under Section 143(1)

Section 143(1)(a) allows for adjustments in the return for any apparent incorrect claims. The Tribunal noted that since the claim of deduction for employees' contributions was not allowable as per the Supreme Court's interpretation, it could be disallowed in the intimation under Section 143(1). The Tribunal directed that the disallowance should be restricted to the employees' contribution amounting to Rs. 6,74,509/- for A.Y. 2018-19.

For A.Y. 2019-20, the Tribunal applied the same rationale, directing the Assessing Officer to disallow only the employees' contribution amounting to Rs. 7,88,835/-.

Conclusion:

Both appeals filed by the Assessee were partly allowed, with the Tribunal directing the disallowance to be restricted to the employees' contributions for both assessment years. The order was pronounced in the open court on 13th March 2023.

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