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Issues: Whether the disallowance of employees' contribution towards PF and ESI under section 36(1)(va) was sustainable where the delay occurred during the COVID-19 lockdown period and the concerned EPF authority had issued a circular waiving penal damages for delayed deposit during lockdown.
Analysis: The delay related only to the months falling within the peak lockdown period. The contributions were deposited immediately on the first available opportunity after relaxation of lockdown and banking restrictions. The EPF circular dated 15.05.2020 specifically provided relief from levy of penal damages for delay in deposit of dues during lockdown and stated that no proceeding would be initiated for such delay. The principles in Checkmate Services were noted, but the present matter was distinguished on its peculiar facts because the employer had not retained the amounts for an undue period and there was no mischief of misuse of employees' contribution. The disallowance under section 36(1)(va) was therefore held to be inapplicable on these special facts.
Conclusion: The disallowance was deleted and the addition was held unsustainable, in favour of the assessee.
Ratio Decidendi: Where employees' contribution is deposited immediately after lockdown relaxation and the relevant welfare authority has waived penal damages for delay during the lockdown period, a disallowance under section 36(1)(va) may not be sustained on those peculiar facts.
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