Employee PF ESI contributions paid late but before return filing creates deemed income under sections 36(1)(va) and 2(24)(x)

ITAT Chennai held that delayed payment of employees' PF and ESI contributions beyond due date but before filing return constitutes deemed income under sections 36(1)(va) and 2(24)(x), following SC precedent in Checkmate Services case. The tribunal confirmed CIT(A) and CPC orders disallowing incorrect claims during processing under section 143(1). Regarding tax benefit denial under section 115BAA(5), ITAT restored the matter to AO pending CBDT's decision on assessee's condonation petition under section 119(2)(b), allowing this issue for statistical purposes.

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Issues Involved:
1. Adjustment under Section 143(1) regarding delayed payment of employees' contributions to Provident Fund (PF) and Employees State Insurance (ESI).
2. Denial of tax benefit under Section 115BAA due to late filing of return.

Issue-wise Detailed Analysis:

1. Adjustment under Section 143(1) regarding delayed payment of employees' contributions to PF and ESI:

The assessee filed a return of income for the assessment year 2020-21, which was processed by the ADIT, CPC, Bangalore, resulting in an adjustment under Section 143(1) of the Income Tax Act, 1961. The adjustment disallowed the deduction of employees' contributions to Provident Fund (PF) amounting to Rs. 2,09,425 and Employees State Insurance (ESI) contributions of Rs. 3,408, totaling Rs. 2,12,833, because these payments were made beyond the due dates prescribed under the respective statutes.

The assessee argued that such adjustments fall outside the scope of Section 143(1). However, the CIT(A) upheld the adjustment, referencing the audit report which indicated the delayed payments. The CIT(A) noted that adjustments can be made under Section 143(1) based on information in the tax audit report, even if the claims are incorrect or apparent from the return.

The Tribunal observed that the Hon'ble Supreme Court in Checkmate Services Pvt. Ltd. had categorically held that payments on account of employees' contributions to PF and ESI are allowable only if made within the due dates prescribed under the respective statutes. The Tribunal upheld the CIT(A)'s decision, noting that the adjustments were within the purview of Section 143(1) and were based on the audit report filed by the assessee.

2. Denial of tax benefit under Section 115BAA due to late filing of return:

The second issue involved the denial of the tax benefit under Section 115BAA(5) of the Act. The CPC, Bangalore, while processing the return of income, computed the tax liability at a higher rate of 30% plus surcharge and cess, instead of the lower rate of 22% plus surcharge and cess as per Section 115BAA. The assessee had filed the return of income belatedly on 30.03.2021, beyond the extended due date of 15.02.2021.

The CIT(A) upheld the CPC's action, stating that the assessee failed to meet the first condition of timely filing the return of income. Although the assessee exercised the option under Section 115BAA in the return and filed Form 10-IC, the delay in filing the return could not be condoned as per the CBDT's circular.

The Tribunal noted that the assessee had moved a petition for condonation of delay in filing the return of income under Section 119(2)(b) before the CBDT. The Tribunal restored the issue to the AO to await and pursue the decision on the petition for condonation of delay. If the CBDT condones the delay, the assessee would be eligible for the lower tax rate under Section 115BAA.

Conclusion:

The appeal was partly allowed for statistical purposes, with the Tribunal upholding the adjustment under Section 143(1) regarding delayed PF and ESI contributions and restoring the issue of the tax rate under Section 115BAA to the AO, pending the decision on the petition for condonation of delay by the CBDT.

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