2024 (8) TMI 536 - AT - Income Tax

COVID-19 lockdown delays in PF ESI deposits not detrimental under section 36(1)(va) when EPF waived penalties

Diamour Jewels Pvt. Ltd. Versus Centralised Processing Centre, Income Tax Department, Bengaluru

Diamour Jewels Pvt. Ltd. Versus Centralised Processing Centre, Income Tax Department, Bengaluru - TMI Issues:1. Disallowance of payment made under section 36(1)(va) for Assessment Year 2021-22 due to Covid Pandemic.2. Violation of principle of natural justice by Ld. CIT(A) in passing order in a hurry.3. Interpretation of Circular by Employee's Provident Fund Organisation relaxing penalties for delayed deposits during lockdown.4. Effect of delay in depositing employees' contribution to PF and ESI during lockdown on deduction under section 36(1)(va) of the Income-tax Act.Issue 1:The appeal concerned the disallowance of a payment made under section 36(1)(va) for Assessment Year 2021-22 due to the Covid Pandemic. The delay in depositing employees' share of Provident Fund and ESI during the lockdown period was the primary issue. The appellant argued that the circumstances of the lockdown and operational difficulties were beyond their control, justifying the delayed payment. The Ld. CIT(A) disallowed the deduction based on the decision of the Hon'ble Supreme Court in the case of Checkmate Services (P) Ltd. v. CIT. The Tribunal analyzed the facts, considering the relaxation provided by the EPF Organisation during the lockdown period and concluded that the delay in depositing the contributions during the lockdown did not have an adverse effect on the appellant under section 36(1)(va) of the Act.Issue 2:The appellant raised a concern regarding the violation of the principle of natural justice by the Ld. CIT(A) in passing the order hastily. The appellant contended that their submissions were ignored, and the order was passed before the due date mentioned in the notice. However, the Tribunal did not find this procedural irregularity to be substantial in the context of the substantive issues raised in the appeal.Issue 3:The interpretation of the circular issued by the Employee's Provident Fund Organisation, relaxing penalties for delayed deposits during the lockdown, was a crucial aspect of the case. The appellant argued that this circular provided relief to employers facing difficulties in timely depositing contributions due to the lockdown. The Tribunal considered this circular along with the decision of the Hon'ble Supreme Court in the Checkmate Services case to determine the impact of the delayed deposits on the deduction under section 36(1)(va) of the Act.Issue 4:The effect of the delay in depositing employees' contribution to PF and ESI during the lockdown on the deduction under section 36(1)(va) of the Income-tax Act was the central issue analyzed by the Tribunal. The Tribunal examined the provisions of the Act, relevant circulars, and the specific circumstances of the case to conclude that the delay during the lockdown, where penalties were waived, did not disentitle the appellant from claiming the deduction. The Tribunal allowed the appeal, emphasizing that its decision was specific to the unique facts of the case and should not set a precedent.This detailed analysis of the judgment provides insights into the various issues raised, the arguments presented by the parties, and the Tribunal's reasoning in arriving at its decision.