ITAT Upholds Disallowance Under Section 36(1)(va) for Delayed PF and ESIC Contributions

The ITAT Pune upheld the disallowance under section 36(1)(va) for delayed payment of employees' contributions to Provident Fund and ESIC, as reflected in the audit report. The tribunal found no error in the CIT(A)'s order, which relied on the Supreme Court's ruling in Checkmate Services Pvt. Ltd. The assessee's appeal was dismissed.

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ISSUES:

Whether disallowance under section 36(1)(va) of the Income Tax Act for delayed deposit of employees' contribution to Provident Fund and ESIC can be made in an order passed under section 143(1) of the Act.Whether the deduction under section 36(1)(va) is allowable if the employees' share is deposited before the due date prescribed under section 139(1) of the Act for filing the return.Whether the disallowance made under section 36(1)(va) falls within the scope of adjustments permissible under clauses (ii) or (iv) of section 143(1)(a) of the Act.Whether the disallowance can be resisted on the ground that no deduction was specifically claimed in the Profit and Loss account for the employees' share.Whether the time limit for deposit of employees' share in relevant funds can be linked to the time of payment of wages under section 5 of the Payment of Wages Act, 1936.

RULINGS / HOLDINGS:

The disallowance under section 36(1)(va) for delayed deposit of employees' contribution is valid and can be made in an order passed under section 143(1)(a) as it falls within the scope of "disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return."The deduction under section 36(1)(va) is allowable only if the employees' share is deposited by the employer before the due date prescribed under the respective Acts, and not merely before the due date for filing the return under section 139(1); hence, section 43B proviso does not assist in this context.The disallowance made under section 36(1)(va) is covered under clause (iv) of section 143(1)(a) relating to "disallowance of expenditure indicated in the audit report," and not under clause (ii) relating to "incorrect claim apparent from any information in the return."The argument that no separate deduction was claimed in the Profit and Loss account for the employees' share is without merit because the gross salary claimed includes the employees' share, and disallowance of the employees' share deduction under section 36(1)(va) effectively reduces the claimed deduction.The time limit for deposit of employees' share in the relevant funds is governed by the respective Provident Fund and ESIC Acts and not by section 5 of the Payment of Wages Act, 1936; thus, the due date for deposit is independent of the wage payment date.

RATIONALE:

The Court applied the statutory framework of sections 2(24)(x), 36(1)(va), 43B, and 143(1)(a) of the Income Tax Act, along with Explanation (a) to section 143(1), to determine the permissibility of disallowance in summary assessment proceedings.The Court relied on the Supreme Court's decision in Checkmate Services Pvt. Ltd. vs. CIT, which clarified that the deduction under section 36(1)(va) requires deposit of employees' contribution before the due date prescribed under the respective Acts, rejecting earlier High Court views allowing deduction based on deposit before the return filing date under section 139(1).The Court emphasized that the audit report's clear indication of delayed deposit (showing due date and actual payment date) satisfies the requirement of "disallowance of expenditure indicated in the audit report" under section 143(1)(a)(iv), justifying adjustment in the summary assessment.The Court distinguished the two limbs of clause (iv) of section 143(1)(a)-"disallowance of expenditure" and "increase in income"-holding that only the former applies in the present case as the adjustment was for disallowance of expenditure, not increase of income, and the amendment introducing "increase in income" was not applicable to the assessment year under consideration.The Court rejected the contention that the disallowance is barred because it was made in summary assessment under section 143(1), holding that such adjustment is permissible within the specific clauses enumerated in section 143(1), particularly clause (iv).The Court rejected the argument linking deposit timelines to the Payment of Wages Act, holding that the statutory provisions governing deposit of employees' contribution are independent and have their own prescribed due dates.The Tribunal's prior decision in the identical issue for the same assessee and assessment year 2018-19 was followed as binding precedent, reinforcing consistency in interpretation and application of the law.

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