2025 (4) TMI 741 - AT - Income Tax

Assessee wins appeal against Section 36(1)(va) addition for one-day late EPF deposit due to portal technical issues

The Kangra Co-operative Bank Ltd. Versus Dy. CIT, Circle-62 (1), Delhi

The Kangra Co-operative Bank Ltd. Versus Dy. CIT, Circle-62 (1), Delhi - TMI ISSUES PRESENTED and CONSIDEREDThe core legal issue considered in this case was whether the disallowance of expenses under section 36(1)(va) of the Income Tax Act, 1961, for the late deposit of Employee Provident Fund (EPF) contributions by the assessee, was justified. Specifically, the question was whether the one-day delay in depositing the EPF contributions due to technical glitches on the EPF portal could be excused, thereby avoiding the disallowance of Rs. 8,37,196/- made by the Assessing Officer (AO) and confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)].ISSUE-WISE DETAILED ANALYSISRelevant legal framework and precedents:The relevant legal framework includes section 36(1)(va) of the Income Tax Act, 1961, which pertains to the deduction of certain expenses. The provision requires that contributions to employee welfare funds like EPF be deposited within the prescribed due dates. The Tribunal considered precedents such as the judgments in FIL India Business & Research Services (P.) Ltd. v. Deputy Commissioner of Income-tax, K Venkata Reddy v. Commissioner of Income Tax, and others, which addressed similar issues of delayed deposits due to technical or system-related issues.Court's interpretation and reasoning:The Tribunal interpreted the legal provisions in light of the factual circumstances presented by the appellant. It reasoned that the delay in depositing the EPF contributions was due to technical issues on the EPF portal, which were beyond the control of the assessee. The Tribunal noted that similar situations in past cases were resolved in favor of the assessee when delays were attributable to system glitches or connectivity issues, as seen in the cited precedents.Key evidence and findings:The Tribunal considered evidence such as the circulars issued by the EPFO, which extended the deadline for Aadhaar seeding with UANs and acknowledged the technical issues faced by employers. The appellant provided evidence of the technical glitches and the immediate deposit of the contributions on the next day, June 16, 2021, once the portal issues were resolved.Application of law to facts:Applying the law to the facts, the Tribunal found that the appellant had acted diligently and that the delay was not due to negligence or willful default. The Tribunal emphasized that the appellant deposited the EPF contributions at the earliest opportunity, once the technical issues were resolved, aligning with the principles established in similar cases.Treatment of competing arguments:The Tribunal considered the arguments presented by the Department, which relied on the order of the CIT(A) confirming the disallowance. However, the Tribunal found the appellant's arguments more compelling, given the uncontested evidence of technical glitches and the immediate corrective action taken by the appellant.Conclusions:The Tribunal concluded that the disallowance of Rs. 8,37,196/- was unwarranted under the circumstances. It held that the appellant should not be penalized for the delay caused by factors beyond its control, and the addition made by the AO and confirmed by the CIT(A) was set aside.SIGNIFICANT HOLDINGSThe Tribunal's significant holding was that technical glitches on the EPF portal, which prevented the timely deposit of contributions, constituted a reasonable cause for the delay. The Tribunal preserved the principle that when an assessee acts in good faith and system-related issues cause a delay, penal consequences should not follow.Core principles established:The Tribunal reaffirmed the principle that delays attributable to technical or system issues should not result in disallowances or penalties if the assessee acts promptly to rectify the situation once the issues are resolved.Final determinations on each issue:The Tribunal determined that the appeal filed by the assessee was allowed, and the disallowance of Rs. 8,37,196/- was set aside. The Tribunal emphasized that the appellant had demonstrated due diligence and that the delay was excusable under the circumstances.