Belated PF and ESI contributions paid after statutory due dates cannot be claimed as deductions under section 36(1)(va)

ITAT Visakhapatnam upheld disallowance of belated PF and ESI contributions paid after statutory due dates. The tribunal confirmed that post-2008 Finance Act amendments, CPC has expanded powers under section 143(1) to make adjustments based on information in returns, including tax audit reports. The assessee's claim for deduction was rejected as payments were made beyond prescribed deadlines under PF and ESI Acts, attracting section 36(1)(va) provisions. The adjustment by CPC was deemed valid based on apparent incorrect claims in the return.

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Issues Involved:
1. Disallowance of belated payments of employees' contributions to PF and ESI.
2. Scope of adjustments under section 143(1) of the Income Tax Act, 1961.
3. Applicability of amendments made by Finance Act, 2021 to sections 36(1)(va) and 43B.

Detailed Analysis:

1. Disallowance of Belated Payments of Employees' Contributions to PF and ESI:
The assessee filed his return of income for the A.Y. 2019-20, declaring a total income of Rs. 34,66,020/-. The Centralized Processing Centre (CPC) disallowed Rs. 4,50,886/- due to belated payments of employees' contributions to PF and ESI. The assessee argued that these contributions were remitted before the due date of filing the return under section 139(1) and thus should not be disallowed. The CIT(A) upheld the disallowance, and the assessee appealed to the Tribunal.

2. Scope of Adjustments under Section 143(1) of the Income Tax Act, 1961:
The assessee contended that the adjustment of Rs. 4,50,886/- was outside the scope of intimation under section 143(1) of the Act. The Tribunal examined the provisions of section 143(1)(a), which allows for adjustments in cases of arithmetical errors, incorrect claims apparent from the return, and other specified conditions. The Tribunal referenced the Memorandum of Finance Bill, 2008 and 2016, which expanded the scope of adjustments to include incorrect claims apparent from the return's information, such as audit reports.

The Tribunal noted that the adjustments made by the CPC were based on the tax audit report, which indicated belated payments of employees' contributions to PF and ESI. These payments were made beyond the due dates specified under the respective Acts, invoking disallowance under section 36(1)(va) read with section 2(24)(x) of the Act. The Tribunal upheld the CPC's disallowance, citing the Hon'ble Supreme Court's decision in Checkmate Services Pvt. Ltd., which confirmed that belated payments under PF and ESI are not allowable deductions under section 36, even if remitted before filing the return under section 139(1).

3. Applicability of Amendments Made by Finance Act, 2021 to Sections 36(1)(va) and 43B:
The assessee argued that the amendments made by Finance Act, 2021 to sections 36(1)(va) and 43B, which clarified the disallowance of belated payments, were applicable only from A.Y. 2022-23 and should not apply to the A.Y. 2019-20. The Tribunal, however, emphasized that the disallowance was based on the provisions existing during the relevant assessment year and not on the amendments introduced later.

The Tribunal also referenced decisions from the ITAT Chennai and the Hon'ble High Court of Madras, which supported the validity of disallowances made by the CPC under section 143(1) when incorrect claims were apparent from the return's information.

Conclusion:
The Tribunal concluded that the CPC's adjustments under section 143(1) were valid and upheld the CIT(A)'s order. The appeal of the assessee was dismissed, affirming the disallowance of Rs. 4,50,886/- for belated payments of employees' contributions to PF and ESI. The Tribunal emphasized the broad scope of section 143(1)(a) adjustments and the applicability of existing provisions at the time of the assessment year in question. The order was pronounced in the open court on 8th March 2023.

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