2025 (9) TMI 352 - AT - Income Tax

Appeal allowed; disallowance under s.36(1)(va) deleted where employer deposited PF/ESIC on time despite one-day bank delay

ITAT allowed the appeal and deleted the disallowance under s.36(1)(va). The tribunal found the employer had deposited employees' PF/ESIC contributions ... Disallowance u/s 36(1)(va) - sum received from employees’ contribution towards any Provident Fund or superannuation fund - assessee submitted that there was a delay of only one day in depositing Provident Fund and ESIC HELD THAT:- As per the challans produced before us, the assessee had made the payment on / within the due date prescribed under the respective Act. Looking into the instant facts, this is not a fit case for making disallowance u/s 36(1)(va) since on his part the assessee had made payment within the due date prescribed under the respective Act and it was only on account of a technical glitches, there was a one day delay in credit of such amount to the respective account of the PF/ESIC authorities. In the case of FIL India Business & Research Services (P.) Ltd. [2023 (9) TMI 906 - ITAT DELHI] ITAT held that since assessee had initially deposited employees dues before prescribed due dates but due to glitches at end of respective authorities, the amounts were reversed by bank, assessee could not be penalized with addition on account of delayed deposits. Accordingly, addition/disallowance on account of delay in contribution to the Provident Fund / ESIC is liable to be deleted. Appeal of the assessee is allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the appeal, filed three days late, warrants condonation of delay. 2. Whether an addition / disallowance under Section 36(1)(va) for employees' contributions to Provident Fund/ESIC is warranted where the assessee tendered payment on or before the statutory due date but the amount was credited to the authorities' account one day later due to server/technical glitches. 3. Whether judicial precedent and analogous decisions support deletion of such addition where delay in credit is attributable to technical issues beyond assessee's control. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Condonation of Delay Legal framework: The Tribunal may condone delay in filing appeals where sufficient cause is shown and prejudice to the other side is negligible. Interpretation and reasoning: The Tribunal observed a three-day delay in filing and, on consideration of facts and the smallness of delay causing no perceptible prejudice, exercised discretion to condone the delay. Ratio vs. Obiter: Ratio - delay of three days was condoned as within Tribunal's discretion where no prejudice shown. Conclusion: Delay condoned; appeal admitted for adjudication on merits. Issue 2 - Disallowance under Section 36(1)(va) for late credit caused by technical glitches Legal framework: Section 36(1)(va) disallows deduction in respect of employees' contribution to specified funds where contributions are not deposited in accordance with statutory timelines; the date of deposit/credit to the fund/account is material for determining allowability. Precedent Treatment (followed/distinguished/overruled): The Tribunal relied on a recent Tribunal decision (FIL India Business & Research Services (P.) Ltd. v. Dy. CIT) holding that where the assessee deposited employees' dues before prescribed due dates but a delay in credit occurred due to glitches at the end of the authorities/banks, addition was not warranted. The Tribunal observed that earlier decisions cited by the revenue were factually distinguishable. Interpretation and reasoning: On the facts, the assessee physically made payment on the due date (challans showing payment on or within the due date), but the credit to EPF/ESIC accounts occurred the next day due to server/technical issues beyond the assessee's control. The Tribunal treated the operative fact as the assessee's timely payment and held that penalizing the assessee under Section 36(1)(va) for a one-day delay in credit attributable to technical glitches would be unjust. The Tribunal explicitly accepted the documentary evidence (challans) and found that the delay in credit was not on account of any wilful default or negligence by the assessee. Ratio vs. Obiter: Ratio - where an assessee deposits employees' contributions on or before the statutory due date but the amount is credited to the statutory authority's account after a short delay caused by technical/server issues beyond the assessee's control, disallowance under Section 36(1)(va) is not warranted; the timely payment on the due date negates application of the provision in such circumstances. Obiter - the Tribunal observed distinctions between the facts before it and other authorities relied upon by the lower authority, including reference to a Supreme Court decision cited below by the lower authority, but did not mechanically apply that authority because of material factual differences. Conclusion: The addition / disallowance of Rs. 4,32,177 made under Section 36(1)(va) is deleted because the assessee paid within the due date and the one-day delay in credit was due to technical glitches beyond the assessee's control. Issue 3 - Application of broader precedent and statutory amendment arguments Legal framework: Reliance on judicial precedents assessing allowability where delay in credit arises from reasons outside assessee's control; appellant also contended that post-fact amendments (Finance Act, 2021) are prospective. Precedent Treatment (followed/distinguished/overruled): The Tribunal followed the cited Tribunal decision (FIL India) that absolved the assessee where payment on due date was made but credit delay arose from glitches. The Tribunal found the facts of other authorities relied upon by the lower authority to be distinguishable and did not accept those authorities as mandating disallowance. The Tribunal did not base its decision on the prospectivity or retrospectivity of statutory amendment (Finance Act, 2021) but decided the matter on the factual question of timely payment and causation by technical glitches. Interpretation and reasoning: The Tribunal treated the factual scenario (timely payment but delayed credit due to technical problems) as decisive and preferred the precedent that addresses similar factual matrix rather than invoking a general rule from other decisions or relying on statutory amendment arguments which were unnecessary to resolve the case. Ratio vs. Obiter: Ratio - factual causation (technical glitch) coupled with documentary proof of payment on due date controls the outcome; no need to decide prospectivity of the statutory amendment. Obiter - comments rejecting the applicability of other authorities to the present facts. Conclusion: Reliance on fact-specific precedent supports deletion of the disallowance; the Tribunal disposed of the appeal on those grounds without adjudicating the appellant's submission on the retrospective/prospective operation of statutory amendments.