Late deposit of ESI EPF contributions and unpaid GST disallowed under sections 36(1)(va) and 43B

ITAT Delhi upheld disallowances under section 36(1)(va) for late deposit of employees' ESI and EPF contributions, following SC precedent in Checkmate Services case. The tribunal also sustained disallowances under section 43B for non-payment of GST within ITR filing due dates for AY 2019-20 and 2020-21, relying on TCG Lifesciences precedent. Both issues were decided against the assessee, confirming the lower authority's findings on statutory compliance requirements for deduction claims.

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1. ISSUES PRESENTED and CONSIDERED

The Tribunal considered the following core legal issues arising from the appeals for Assessment Years (AY) 2018-19, 2019-20, and 2020-21:

• Whether the appeal for AY 2018-19 was maintainable despite delay in filing the appeal before the first appellate authority, and whether the delay should be condoned.
• Whether disallowances under section 36(1)(va) of the Income Tax Act, 1961 ("the Act") on account of late deposit of employees' contribution to Employees' State Insurance (ESI) and Employees' Provident Fund (EPF) were justified.
• Whether disallowances under section 43B of the Act on account of non-payment of Goods and Services Tax (GST) within the due date for filing Income Tax Returns (ITR) under section 139(1) of the Act for AYs 2019-20 and 2020-21 were justified.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Maintainability of Appeal for AY 2018-19 (Delay in Filing Appeal)

Relevant Legal Framework and Precedents: The law mandates timely filing of appeals before the first appellate authority. However, delay can be condoned if satisfactorily explained under the relevant procedural provisions.

Court's Interpretation and Reasoning: The Additional/Joint Commissioner of Income Tax (Appeals) had initially dismissed the appeal for AY 2018-19 on the ground of non-maintainability due to unexplained delay. The Tribunal reviewed the impugned order and the justification offered by the assessee for the delay.

Key Evidence and Findings: The Tribunal found the explanation for the delay satisfactory and held that the first appellate authority was not justified in dismissing the appeal solely on the ground of delay.

Application of Law to Facts: The Tribunal reversed the finding of non-maintainability and allowed the appeal to be heard on merits, emphasizing that procedural delays should not bar substantive adjudication if adequately explained.

Treatment of Competing Arguments: The Department did not contest this point at length, and the Tribunal sided with the assessee's explanation.

Conclusion: The appeal for AY 2018-19 was held maintainable, and the delay in filing the appeal was condoned.

Issue 2: Disallowance under Section 36(1)(va) for Late Deposit of Employees' Contribution to ESI & EPF

Relevant Legal Framework and Precedents: Section 36(1)(va) of the Act disallows deduction for any sum payable by the assessee by way of contribution to any provident fund or other fund for the welfare of employees if not paid within the prescribed time under the relevant laws. The Supreme Court's decision in the case of Checkmate Services Pvt. Ltd. (448 ITR 518) was a pivotal precedent affirming the applicability of this provision for late payment of employees' contributions.

Court's Interpretation and Reasoning: The Tribunal noted that the disallowances related to employees' contributions to ESI and EPF which were not deposited within the statutory timelines under the respective Acts. The first appellate authority had upheld these disallowances, and the Tribunal found no material on record to contradict these findings.

Key Evidence and Findings: The Additional/Joint Commissioner of Income Tax (Appeals) had recorded categorical findings that the contributions were deposited late beyond the statutory period, justifying the disallowances under section 36(1)(va).

Application of Law to Facts: Following the Supreme Court's ruling, the Tribunal held that the disallowances were justified and declined to interfere with the appellate authority's decision.

Treatment of Competing Arguments: The assessee did not produce evidence to challenge the timing of deposits or the applicability of section 36(1)(va). The Department's submissions were accepted as per the binding precedent.

Conclusion: Disallowances under section 36(1)(va) for late deposit of employees' contribution to ESI & EPF were upheld for all three assessment years.

Issue 3: Disallowance under Section 43B for Non-Payment of GST within Due Date for Filing ITR (AYs 2019-20 and 2020-21)

Relevant Legal Framework and Precedents: Section 43B mandates that certain expenses, including taxes, duties, cess or fees payable under any law, are allowable as deductions only if paid on or before the due date of filing the return of income under section 139(1). The ITAT Kolkata decision in TCG Lifesciences Pvt. Ltd. (I.T.A. No.126/KOL/2024) and ITAT Varanasi decision in Husna Parveen (142 taxmann.com 2) were relied upon by the Department to support the disallowance of GST liabilities not paid within the prescribed time.

Court's Interpretation and Reasoning: The Tribunal examined the detailed reasoning of the ITAT Kolkata decision, which emphasized that GST liabilities must be routed through the Profit & Loss (P&L) account for income computation as per sections 145 and 145A of the Act. The Tribunal noted that the assessee's failure to pay GST before the due date of filing the ITR triggered disallowance under section 43B.

Key Evidence and Findings: The tax audit reports and balance sheets disclosed GST liabilities outstanding as of the due date of filing returns. The Tribunal observed that the assessee's accounting treatment did not route GST through the P&L account, which was contrary to the statutory mandate under section 145A.

Application of Law to Facts: The Tribunal applied the statutory provisions and precedents to hold that the GST liability, being a tax payable under law, must be paid before the due date of filing ITR to claim deduction. The failure to do so justified the disallowance under section 43B.

Treatment of Competing Arguments: The assessee argued that since GST was not routed through the P&L account, section 43B should not apply. The Tribunal rejected this argument, holding that the method of accounting prescribed by sections 145 and 145A mandates routing such liabilities through P&L for income computation. The Tribunal further noted that allowing the assessee's approach would render section 43B redundant and permit tax evasion.

Conclusion: Disallowances under section 43B for non-payment of GST within the due date for filing ITR were upheld for AYs 2019-20 and 2020-21.

3. SIGNIFICANT HOLDINGS

The Tribunal made the following crucial legal determinations:

On the issue of maintainability of the appeal for AY 2018-19, the Tribunal held: "the justification offered by the assessee for filing belated appeal before the Ld. Addl./Jt. CIT(A) is satisfactory and thus, the finding of the Ld. Addl./Jt. CIT(A) that the appeal of the AY 2018-19 nonmaintainable is reversed."

Regarding disallowances under section 36(1)(va), the Tribunal affirmed the binding precedent of the Supreme Court in Checkmate Services Pvt. Ltd. and held: "we therefore, following the reasoning given by the Hon'ble Supreme Court in the case of Checkmate Services Pvt. Ltd., decline to interfere with the finding of the Ld. Addl./Jt. CIT(A) on the issue of disallowances made under section 36(1)(va) of the Act on account of late deposit of employees' contribution to ESI & EPF."

On disallowance under section 43B for GST, the Tribunal relied extensively on the ITAT Kolkata decision in TCG Lifesciences Pvt. Ltd. and stated:

"Section 43B(a) refers to the sum payable by the assessee by way of tax, duty, cess or fee by whatever name called, under any law for the time being in force for the same and if such amount not paid before the due date of filing return of income, it needs to be added to the income of the assessee."

"Section 145A ... provides that for the purpose of determining income chargeable under the head profits and gains of business or profession, valuation of purchase and sale of goods or services and of inventory shall be adjusted to include the amount of any tax, duty, cess or fee actually paid or incurred by the assessee."

"It is not on the discretion of the assessee to route the tax, duties or cess through its P&L Account but it is mandatory as per sec. 145 and sec. 145A of the Act ... and the provisions of section 43B of the Act would be invoked if necessary conditions are not fulfilled."

"We accordingly, fail to find any infirmity in the finding of the Ld. CIT(A) confirming the alleged disallowance made u/s. 43B of the Act."

These holdings establish the core principles that:

• Delay in filing appeal can be condoned if satisfactorily explained, allowing substantive adjudication.
• Late deposit of employees' contributions to ESI & EPF beyond statutory timelines attracts mandatory disallowance under section 36(1)(va) as per Supreme Court precedent.
• GST liabilities, being taxes payable under law, must be paid before the due date of filing ITR under section 139(1) to claim deduction; failure to do so results in disallowance under section 43B.
• Accounting treatment under sections 145 and 145A mandates routing such tax liabilities through P&L account for income computation, thus triggering section 43B if payment conditions are not met.

Accordingly, the Tribunal dismissed all appeals, upholding the disallowances and reversing the non-maintainability finding only to decide the appeal on merits.

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