2025 (2) TMI 1456 - AT - Income Tax

Employer and employee PF/ESI contribution disallowance: timely deposit before return filing or by salary disbursement month avoids additions.

Disallowance of employer contribution to provident fund and ESI under tax deduction provisions is impermissible where the employer's share was deposited ... Disallowance being employer’s contribution towards Provident Fund and ESI - Addition u/s 36(1) v/s 43B - Computation of due date for deposit of contributions of employees and employers HELD THAT:- Disallowance u/s 36(1)(va) is not permissible since the employer’s contribution have been deposited by the assessee before the due date of filing of return of income u/s 139(1) of the Act. We agree with the contentions of the assessee on first principle. AO may satisfy itself that the employer’s contribution has been deposited before the due date of filing of return of income as contemplated u/s 36(1)(va) r.w.s 43B of the Act. Where it is found that the employer’s contribution has been deposited before due date of filing of return of income u/s 139(1), the disallowance carried out on this score shall be reversed and deleted by the AO. Employees contribution to the PF/ESI etc., it is the case of the assessee that firstly, the delay is only one or two days which may be on account of holiday immediately prior to the due date of the deposits and secondly, the due date for deposit of employees contribution should be reckoned from the month in which the salary were actually disbursed rather than accrued as held in Sentinel Consultants P.Ltd. [2023 (6) TMI 1419 - ITAT DELHI] and plethora of other judgements of the Tribunal. We find substance in the plea of the assessee. The issue is thus also set aside to the file of the AO. The AO shall adjudicate the issue in consonance with judgement referred (supra) and shall reverse and cancel the additions or disallowances where the assessee is able to demonstrate that it has deposited the employees contribution within due date with reference to the month of actual disbursement of salary. Appeal of the assessee is allowed for statistical purposes. Issues: (i) Whether the disallowance of employer's contribution to Provident Fund and ESI of INR 22,64,426/- under Section 36(1)(va) is sustainable where such contributions are deposited before the due date of filing return under Section 139(1) read with Section 43B; (ii) Whether the disallowance of employee's contribution to PF/ESI of INR 8,54,091/- under Section 36(1)(va) is sustainable where salary payment was postponed and contributions were deposited within the prescribed time reckoned from the month of actual salary disbursement.Issue (i): Whether employer's contribution to PF/ESI deposited before the due date of filing the return is liable to disallowance under Section 36(1)(va) read with Section 43B.Analysis: The Tribunal examined whether deposits of employer's statutory contributions made before the due date for filing the return under Section 139(1) satisfy the requirements of Section 36(1)(va) read with Section 43B. The Tribunal directed that the assessing officer may verify records to ascertain whether deposits were made before the due date of filing the return and, if so, reverse the disallowance.Conclusion: In favour of the Assessee. Where employer's contributions are shown to have been deposited before the due date of filing the return under Section 139(1), the disallowance under Section 36(1)(va) read with Section 43B shall be deleted.Issue (ii): Whether employee's contributions to PF/ESI are liable to disallowance under Section 36(1)(va) where salary disbursement was postponed and contributions were deposited within the time reckoned from the month of actual salary payment.Analysis: The Tribunal considered precedents treating the due date for deposit of employee contributions as to be reckoned from the month of actual salary disbursement. The Tribunal found merit in the contention that short delays (e.g., one or two days due to holidays) and deposits made within the prescribed period measured from actual payment date may preclude disallowance, and remitted the issue to the assessing officer for adjudication in accordance with the referenced coordinate-bench decision and applicable law.Conclusion: In favour of the Assessee. If the assessee demonstrates that employee contributions were deposited within the due period reckoned from the month of actual salary disbursement, the additions/disallowances shall be reversed.Final Conclusion: Both issues are remitted to the file of the Assessing Officer for fresh adjudication in accordance with law and the Tribunal's directions; the appeal is allowed for statistical purposes.Ratio Decidendi: Deposits of employer's statutory contributions made before the due date for filing the return under Section 139(1) satisfy Section 43B and preclude disallowance under Section 36(1)(va); for employee contributions, the due date for deposit is to be reckoned from the month of actual salary disbursement, and deposits made within that period negate disallowance under Section 36(1)(va).