Employee PF and ESI contributions become taxable income if not deposited within due dates under section 36(1)(va)

The ITAT Bangalore ruled on disallowance under section 36(1)(va) for delayed payment of employees' contribution to PF and ESI. The tribunal rejected the assessee's contention that no disallowance could be made under section 143(1)(a) for employees' EPF and ESI contributions. For payments delayed in August-September 2017, the matter was remitted to the AO for examination. Following the SC decision in Checkmate Services, the tribunal held that employees' contributions must be deposited within due dates under relevant welfare legislation, failing which they become taxable income. The appeal was partly allowed for statistical purposes.

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Issues Involved:
Disallowance u/s. 36(1)(va) for delay in payment of employees' contribution to PF and ESI.

Detailed Analysis:

1. Background: The appeal was filed against the order of the CIT(Appeals) regarding disallowance u/s. 36(1)(va) for delay in payment of employees' contribution to PF and ESI for AY 2018-19.

2. Assessee's Submission: The assessee, a partnership firm in the food business, declared total income of Rs.1,04,89,720 for AY 2018-19. The return was processed u/s. 143(1) of the Act, disallowing Rs.17,25,211 for delay in payment of employees' contribution to PF and ESI.

3. Appeal and Arguments: The assessee contended that a significant portion of the amount was paid within the due dates as per EPF & ESI Acts, with some inadvertent errors in Form 3CD regarding remittance dates.

4. Judgment on Disallowance: The CIT(Appeals) dismissed the appeal, leading to the current appeal before the Tribunal.

5. Tribunal's Decision: The Tribunal considered various legal precedents and judgments. It remitted the issue of verifying the proof of payments back to the AO and directed the assessee to produce necessary documents for verification.

6. Further Disallowance: The Tribunal also addressed the disallowance of Rs. 1,29,106 for August and September 2017, remitting the issue to the AO for examination based on the actual payment dates of salaries.

7. Employees' Contribution: The Tribunal upheld the disallowance of Rs. 40,588 for belated remittances of employees' contribution to EPF & ESI, citing the Supreme Court judgment that such contributions must be deposited within due dates under relevant legislation.

8. Final Decision: The appeal by the assessee was partly allowed for statistical purposes, with the Tribunal providing detailed directions for further examination and verification by the AO.

In conclusion, the Tribunal's judgment addressed the issues of disallowance u/s. 36(1)(va) for delay in employees' contribution to PF and ESI, remitting some aspects back to the AO for verification and examination based on legal precedents and relevant legal provisions.

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