Employee PF/ESI contributions must be paid by welfare legislation due dates, not IT return filing deadline under section 43B for deduction eligibility

The ITAT Bangalore dismissed the assessee's appeal regarding delayed employee PF/ESI contributions, following the SC decision in Checkmate Services that such contributions must be remitted by the due date under relevant welfare legislation, not merely before the income tax return filing date under section 139(1), to qualify for deduction under section 43B. However, the tribunal allowed the appeal on club fees disallowance for statistical purposes, remitting the matter back to the AO for factual verification of whether the expenditure was incurred wholly and exclusively for business purposes under section 37, after providing reasonable opportunity to the assessee.

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Issues Involved:
1. Disallowance of delayed remittance of Employee contribution to Provident Fund.
2. Disallowance of Club fees.

Issue 1: Disallowance of delayed remittance of Employee contribution to Provident Fund:
The appeal involved the question of whether the delayed remittance of Employee contribution to Provident Fund, though paid before the due date of filing the return of income, is allowable under section 43B of the Income Tax Act. The Appellate Tribunal referred to the decision of the Hon'ble Supreme Court in the case of Checkmate Services (P.) Ltd. Vs CIT-1, [2022] 143 taxmann.com 178 (SC), which clarified that employees' contributions to PF must be deposited within the due date specified by relevant employee welfare legislation. The Tribunal held that the employees' contribution to PF and ESI should be remitted before the due date as per the explanation to section 36(1)(va) for it to be allowable under section 43B. Consequently, the Tribunal dismissed the grounds taken by the assessee on this issue.

Issue 2: Disallowance of Club fees:
The second issue pertained to the disallowance of Club fees amounting to Rs. 9,68,075 as disclosed in the tax audit report. The Assessing Officer disallowed the amount since the assessee did not file any response, which was confirmed by the CIT(Appeals). The Appellate Tribunal noted that the lower authorities did not examine the factual details of the expenses but relied solely on the tax audit report. The Tribunal directed the issue to be remitted back to the Assessing Officer for factual verification of the nature of club expenditure to determine if it was incurred for business purposes. The Tribunal instructed the assessee to submit the required details and cooperate with the proceedings. Consequently, the Tribunal allowed this ground for statistical purposes.

In conclusion, the appeal by the assessee was partly allowed by the Appellate Tribunal, with the decision pronounced on October 27, 2022.

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