Employee PF and ESI contributions deposited after due date cannot be claimed as deduction under section 43B

The ITAT Hyderabad ruled against the assessee who deposited employee PF and ESI contributions after the prescribed due date. Following the SC precedent in Checkmate Services (P) Ltd., the tribunal held that deduction under section 43B is only admissible if deposits are made before the due date specified in the parent PF/ESI Act. The tribunal rejected the assessee's reliance on its own previous favorable decision, emphasizing that SC judgments are binding and override contrary tribunal decisions. The deduction claim was denied due to late payment.

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Issues Involved:
1. Disallowance of late payment of Provident Fund (PF) and Employees' State Insurance (ESI) contributions.
2. Disallowance of deduction claimed under Section 80JJAA of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Disallowance of Late Payment of PF & ESI Contributions:

The primary issue in this appeal was the disallowance of deductions for late payments of employee contributions to PF and ESI under Section 36(1)(va) of the Income Tax Act, 1961. The assessee argued that the issue was settled in their favor by a previous Tribunal decision for the Assessment Year (AY) 2019-20, which allowed such deductions if payments were made before the filing of the income tax return, despite being after the statutory due date. The assessee relied on the explanatory memorandum to the Finance Bill 2021, which clarified that the amendments to Sections 36(1)(va) and 43B would take effect from April 1, 2021, and thus did not apply to earlier years like AY 2018-19.

The Revenue, however, supported the disallowance by citing the Supreme Court's decision in Checkmate Services Pvt. Ltd. vs. CIT, which clarified that employee contributions must be deposited by the due date specified in the respective welfare laws, not merely by the due date for filing the income tax return. The Supreme Court emphasized the distinction between employer and employee contributions, treating the latter as held in trust and subject to stricter compliance.

The Tribunal, after considering the arguments and the Supreme Court's ruling, concluded that the assessee's reliance on its previous case was misplaced. The Supreme Court's decision was binding and clarified that the deductions under Section 43B are only permissible if the contributions are deposited by the statutory due dates. Consequently, the Tribunal upheld the disallowance of Rs. 27,42,990/- for late payments, dismissing the assessee's appeal on this ground.

2. Disallowance of Deduction under Section 80JJAA:

The second issue concerned the disallowance of a deduction claimed under Section 80JJAA of the Income Tax Act, amounting to Rs. 12,54,481/-. The assessee contended that the requirement to furnish Form 10DA applied only in the year of hiring additional employees and not in subsequent years if no new employees were hired. The assessee argued that the deduction was claimed for the third consecutive year based on the initial employment increase in AY 2017-18.

Upon review, the Tribunal found merit in the assessee's argument. It noted that Section 80JJAA allows deductions for three consecutive years based on additional employment costs incurred in the first year. The Tribunal agreed that filing Form 10DA was necessary only in the year of additional employment costs and not in subsequent years if there were no further increases. Since the assessee had claimed the deduction correctly in the initial year and continued for the allowed duration, the Tribunal allowed the deduction under Section 80JJAA, reversing the disallowance made by the Revenue.

Conclusion:

The appeal was "Partly Allowed," with the Tribunal dismissing the appeal regarding the late payment of PF and ESI contributions but allowing the deduction under Section 80JJAA. The decision emphasized the binding nature of the Supreme Court's interpretation of statutory provisions, particularly regarding the timing of deposits for employee contributions.

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