Employee contributions deposited late face disallowance but Sunday due dates allow next working day payment under General Clauses Act

ITAT Mumbai ruled on delayed PF/ESIC employee contributions, following SC precedent in Checkmate Services case. Tribunal upheld disallowance of late deposits as per statutory requirements, but directed verification of actual amounts deposited late versus amounts disallowed. However, when the due date fell on Sunday, applying General Clauses Act provisions, payment made on next working day was deemed timely since banks were closed and no malafide intent existed.

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Issues Involved:
1. Disallowance of employees' contribution to PF and ESIC under Section 36(1)(va) of the Income Tax Act.
2. Scope of adjustments permissible under Section 143(1) of the Act.
3. Timeliness of payments made towards employees' contribution for PF and ESIC.
4. Discrepancy in the amount disallowed by the CPC/AO and the actual amount deposited late.

Detailed Analysis:

Issue 1: Disallowance of employees' contribution to PF and ESIC under Section 36(1)(va)
The primary issue revolves around the disallowance of the employees' contribution to PF and ESIC under Section 36(1)(va) of the Income Tax Act. The appellant argued that disallowing these contributions while processing the return under Section 143(1) is against the provisions of the Act. The appellant relied on various High Court judgments, including those from the Hon'ble High Court of Gujarat and the Hon'ble High Court of Madras, which favored the assessee. However, the Revenue countered this by relying on the Supreme Court's decision in Checkmate Services P. Ltd. vs. CIT, which upheld the disallowance if the contributions were not deposited by the due date prescribed under the Act.

Issue 2: Scope of adjustments permissible under Section 143(1)
The appellant contended that the disallowance made under Section 36(1)(va) was beyond the scope of adjustments allowed under Section 143(1) of the Act. The Tribunal, however, noted that the Supreme Court in Checkmate Services P. Ltd. vs. CIT had settled this issue, ruling that such disallowances are permissible if the contributions are not deposited within the prescribed time frame.

Issue 3: Timeliness of payments made towards employees' contribution for PF and ESIC
The appellant argued that the disallowed payments were made within the period specified under relevant laws. Specifically, the appellant highlighted a payment made on 16.07.2018, which was one day late because the due date (15.07.2018) fell on a Sunday. The Tribunal examined Circular No. 676 dated 14.01.1994 and Section 10 of the General Clauses Act, 1897, which allow for payments to be considered timely if made on the next working day when the due date falls on a holiday. The Tribunal accepted this argument, stating that the payment made on 16.07.2018 should be considered within time.

Issue 4: Discrepancy in the amount disallowed by the CPC/AO and the actual amount deposited late
The appellant pointed out a discrepancy in the disallowed amount. While the CPC/AO disallowed Rs. 13,21,554/-, the actual amount deposited late was Rs. 12,47,865/-. The Tribunal directed the AO to verify this discrepancy and disallow only the actual amount deposited late.

Conclusion:
The Tribunal partly allowed the appeal, subject to the verification of the payment made on 16.07.2018. The Tribunal upheld the disallowance of contributions not deposited by the due date as per the Supreme Court's ruling in Checkmate Services P. Ltd. vs. CIT. However, it accepted the appellant's argument regarding the payment made on 16.07.2018, considering it timely due to the due date falling on a Sunday. The Tribunal also directed the AO to correct the discrepancy in the disallowed amount.

Order Pronounced:
The order was pronounced in the open court on 25.05.2023.

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