Deduction under Section 36(1)(va) disallowed for delayed PF ESI deposits despite payment before return filing deadline

ITAT Kolkata upheld disallowance of deduction under Section 36(1)(va) for delayed PF ESI deposits. Following SC precedent in Checkmate Services, the tribunal ruled that deduction cannot be claimed for delayed employee PF contributions even when deposited within return filing due date. The tribunal also rejected the assessee's argument that such disallowance constitutes a debatable issue impermissible under Section 143(1) processing, citing coordinate bench decision in Siddhi Vinayaka Graphics. Appeal dismissed.

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Issues Involved:
1. Justification for not allowing grounds for delayed payment of PF & ESI.
2. Confirmation of disallowance of employees' contribution to PF and ESI under Section 36(1)(va) of the Income-tax Act, 1961.
3. Permissibility of adjustments under Section 143(1) of the Income-tax Act, 1961.

Detailed Analysis:

1. Justification for Not Allowing Grounds for Delayed Payment of PF & ESI:
The appellant contended that the JCIT(A)-12, Mumbai was not justified in not allowing the grounds raised for delayed payment of PF & ESI without considering the submissions filed before it on 13.09.2023. The appeal was against the order passed on 09.10.2023, which confirmed the addition of Rs. 26,05,843/- towards late deposit of employees' contribution to Provident Fund and Employees State Insurance (PF & ESI).

2. Confirmation of Disallowance of Employees' Contribution to PF and ESI under Section 36(1)(va) of the Income-tax Act, 1961:
The appellant argued that the JCIT(A)-12, Mumbai was not justified in confirming the disallowance of employees' contribution to PF and ESI under Section 36(1)(va) of the Act without following the decision of the Mumbai ITAT in the case of P R Packaging Services Vs ACIT. The appellant cited the verdict of the Hon'ble Supreme Court in Checkmate Services Pvt. Ltd. Vs. CIT (2022) 143 taxmann.com 178 (SC) dated 12.10.2022, which held that "deduction u/s 36(1)(va) in respect of delayed deposit of amount collected towards employees' contribution to PF cannot be claimed when deposited within the due date of filing of return even when read with Section 43B of the Income-tax Act, 1961." The Tribunal noted that the issue had been settled by the Supreme Court, which distinguished between the employer's contribution and the employees' contribution, emphasizing that the latter must be deposited on or before the due date as prescribed under the relevant enactments.

3. Permissibility of Adjustments under Section 143(1) of the Income-tax Act, 1961:
The appellant contended that disallowance made towards delayed deposit of PF & ESI is a debatable issue and hence, not a permissible adjustment under Section 143(1) while processing the return by CPC, Bengaluru. This contention was addressed by the Coordinate Bench of ITAT, Kolkata in the case of Siddhi Vinayaka Graphics Pvt. Ltd. vs. ACIT, which held against the assessee. The Tribunal referred to the decision of the Hon'ble Supreme Court in Checkmate Services Pvt. Ltd. vs. CIT and other relevant cases, concluding that adjustments under Section 143(1) can be made for disallowance of employees' contribution to PF/ESI if indicated in the audit report but not taken into account in computing the total income in the return. The Tribunal upheld the adjustment made by CPC, Bengaluru, stating that the information in the audit report is indicative of the disallowance required to be made, and such adjustments are permissible under Section 143(1)(a)(iv) of the Act.

Conclusion:
The appeal was dismissed, and the Tribunal upheld the disallowance of Rs. 26,05,843/- towards late deposit of employees' contribution to PF & ESI. The Tribunal followed the decision of the Hon'ble Supreme Court in Checkmate Services Pvt. Ltd. vs. CIT and other relevant judgments, confirming that the adjustments made under Section 143(1) were justified and permissible. The grounds raised by the assessee were not accepted, and the addition made by the JCIT(A)-12, Mumbai was sustained.

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