2023 (10) TMI 1534 - AT - Income Tax

Delayed PF and ESIC Contributions Disallowed Under Section 36(1)(va) for Missing Due Date Deposit

Ravindra Dnyaneshwar Bhujbal Versus ITO, Ward-14 (5), Pune

ITAT Pune upheld the disallowance under section 36(1)(va) for delayed deposit of employees' share of PF and ESIC contributions beyond the prescribed due ... Delayed deposit of employees' share of Provident Fund (PF) and Employees' State Insurance Corporation (ESIC) contributions - addition u/s 36(1)(va) - Intimations issued u/s.143(1) - as submitted assessee claimed the deduction for the employees' share for depositing the same in the relevant funds beyond the due date as given in Explanation 1 to section 36(1)(va) on the strength of section 43B -amount was not credited to the employees’ accounts on or before the due date as prescribed under the respective Acts - HELD THAT:- As decided in case of CEMETILE INDUSTRIES [2022 (12) TMI 354 - ITAT PUNE] there is no merit in the contention of linking the date of deposit of the employees' share in the relevant funds with the date of payment of wages. Section 5 of the Payment of Wages Act simply deals with the 'Time of payment of wages'. It does not stipulate any time limit for deposit of the employees share in the relevant funds. For that purpose, the relevant Acts give a window for depositing the contribution within 15 days of the last month's salary. Thus, contribution to the relevant fund towards the salary for the month of October-ending should be deposited before 15th November. We are satisfied that the ld. CIT(A) was justified in sustaining the adjustment u/s 143(1)(a) by means of disallowance made in these cases for late deposit of employees' share to the relevant funds beyond the date prescribed under the respective Acts - Assessee appeal dismissed. ISSUES: Whether disallowance under section 36(1)(va) of the Income Tax Act is justified for late deposit of employees' share of Provident Fund (PF) and Employees' State Insurance Corporation (ESIC) contributions beyond the due date prescribed under respective statutes, even if paid before the due date for filing return under section 139(1).Whether section 43B of the Income Tax Act permits deduction for employees' share contributions deposited before the due date of filing return under section 139(1) despite late deposit beyond statutory due date.Whether disallowance under section 143(1) of the Act can be made on the basis of audit report indicating late deposit, specifically under clauses (ii) or (iv) of section 143(1)(a).Whether disallowance can be made where no separate deduction for employees' share was claimed in the Profit and Loss account, but salary was claimed on gross basis inclusive of employees' share.Whether the due date for deposit of employees' share in relevant funds can be linked to the date of payment of wages under section 5 of the Payment of Wages Act, 1936. RULINGS / HOLDINGS: Disallowance under section 36(1)(va) is justified where the employees' share of PF and ESIC contributions is not deposited by the employer before the due date prescribed under the respective Acts, notwithstanding payment before the due date under section 139(1). The deduction under section 36(1)(va) 'can be allowed only if the employees' share in the relevant funds is deposited by the employer before the due date stipulated in respective Acts'.Section 43B does not assist in allowing deduction for employees' share contributions deposited after the statutory due date but before the due date for filing return under section 139(1). The proviso to section 43B relaxes the deduction condition only for sums payable by the employer, not for employees' share which is income of the employer under section 2(24)(x).Disallowance under section 143(1)(a) can be made under clause (iv) for 'disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return' where the audit report clearly indicates late deposit of employees' share contributions beyond due date. The audit report's indication is sufficient and 'the indication must be clear and not vague'.The disallowance is valid even if no separate deduction for employees' share was claimed in the Profit and Loss account because claiming gross salary inclusive of employees' share effectively includes the deduction. Hence, disallowance of employees' share portion is warranted.The due date for deposit of employees' share contributions is independent of the date of payment of wages under section 5 of the Payment of Wages Act, 1936. The relevant Acts prescribe a specific window (usually within 15 days of the last month's salary) for deposit, and this statutory due date governs the deduction eligibility. RATIONALE: The Court applied the statutory provisions of the Income Tax Act, 1961, notably sections 2(24)(x), 36(1)(va), 43B, and 143(1)(a), with reference to Explanation 1 to section 36(1)(va) defining 'due date' as per the relevant statutes governing employee contributions.The Supreme Court's authoritative interpretation in Checkmate Services P. Ltd. & Ors. vs. CIT & Ors. (2022) was followed, which distinguished between employer's and employees' share contributions and held that deduction under section 36(1)(va) for employees' share is allowable only if deposited before the statutory due date, overruling earlier High Court precedents.The Court emphasized the non-applicability of section 43B's proviso to employees' share contributions, as these are income of the employer under section 2(24)(x), thus requiring strict compliance with due dates under section 36(1)(va).Interpretation of section 143(1)(a) was guided by the statutory language and Explanation (a), clarifying that disallowance under clause (iv) includes disallowance of expenditure indicated in the audit report, even if not explicitly claimed in the return, provided the indication is clear.The Court rejected the argument linking the due date for deposit of employees' share with the date of wage payment under the Payment of Wages Act, clarifying that the statutory due date for deposit prescribed under the respective Acts is determinative.