2025 (9) TMI 1294 - AT - Income Tax

Direction to allow provident fund deductions where deposit deadlines extended; s.10 GCA applied for next working day deposits

Shyamal Kundu Versus DCIT, (CPC) /DCIT, Circle - 32 (1), Kolkata

ITAT KOLKATA-AT directed the AO to allow deduction of Rs.2,65,767 deposited on 16.09.2019 since 15.09.2019 was a Sunday and, applying s.10 GCA, the next ... Addition on account of late deposit of employees’ contribution to respective fund - amounts were deposited before the due date of filing of return u/s 139(1) - HELD THAT:- In view of the provisions of section 10 of the General Clauses Act, 1897 and since 15.09.2019 was a Sunday and the assessee claims that the amount was deposited on the next working day i.e. 16.09.2019, the Ld. AO is directed to verify and allow the claim of deduction for the amount of Rs. 2,65,767/- deposited on 16.09.2019. Payment relating to provident fund, the assessee contends that the same was deposited on the next day as the online payment system was not working properly. AO is directed to verify whether any extension of the due date for this technical issue has been allowed by the concerned authority as unless there is an extension of the due date, AO would not be justified in accepting that the delayed payment was made within the due date, on account of any technical glitch and in case any such circular or instruction has been issued, the assessee is directed to bring it to the notice of the Ld. AO who shall allow the required relief. Payment on account of PF, the assessee contends that the Provident Fund Department had extended the due date for the month from 15th April, 2020 to 15th May, 2020. The assessee is required to file a copy of the notification issued along with the evidence of payment before the Ld. AO who shall examine the same and verify the due date and if the due date has been extended and the payment has been made within the extended due date, allow the deduction for the same. As the assessee has claimed relief for Rs. 56,13,470/- confirmed by the Ld. CIT(A) and the Ld. AO has been directed to verify the payment relating to Rs. 11,82,901/- only and delete the addition after verification if the same is found to be paid within the due date, Ground No. 1 is partly allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether employees' contributions to PF/ESI, deducted from salaries but deposited after the due date prescribed under the relevant welfare statute, are allowable as deduction where such deposits are made before the due date for filing return under section 139(1) of the Act. 2. Whether payments made on the next working day shall be treated as made within the prescribed due date where the statutory due date falls on a holiday/Sunday, having regard to Section 10 of the General Clauses Act, 1897. 3. Whether delay in deposit caused by technical failure of online payment systems, or by an official extension of the statutory due date (e.g., COVID-19 related extension), can relieve the employer from treatement of such sums as income under section 2(24)(x) and permit deduction, and what proof/verification is required. ISSUE-WISE DETAILED ANALYSIS Issue 1: Allowability of employees' contributions deposited after statutory due date but before filing due date Legal framework: Section 43B(b) of the Income Tax Act (provisions allowing certain deductions only on actual payment), section 36(1)(va) (disallowance where employees' contributions are not deposited as per prescribed due dates), and section 2(24)(x) (treatment as income in hands of employer where employees' contributions are not deposited in time) govern the tax treatment of employees' contributions to welfare funds. Precedent Treatment: The Court applied the decision of the Hon'ble Supreme Court holding that section 43B(b) does not cover employees' contributions deducted from salaries and that such contributions must be deposited within the due date under the relevant welfare legislation; failure to do so results in treatment as employer's income under section 2(24)(x). That Supreme Court pronouncement is treated as binding and determinative of the core legal question. Interpretation and reasoning: The Tribunal accepts the Supreme Court principle that employees' contributions deducted by the employer are not benefitted by section 43B(b) and must strictly comply with due dates prescribed under the PF/ESI statutes. The fact that contributions may be deposited before the income-tax return filing date under section 139(1) is immaterial if statutory due dates under the welfare Acts were missed. The policy rationale-preventing employers from using employees' money-is recognized and applied. Ratio vs. Obiter: The holding that section 43B(b) does not cover employees' contributions and that failure to deposit on time results in inclusion under section 2(24)(x) is ratio decidendi (binding on the Tribunal). References to the policy objective are explanatory and ancillary. Conclusions: Additions confirmed to the extent contributions were deposited after the statutory due dates unless other specific grounds (holiday-next-day rule, technical failure, or official extension) apply and are proved. Ground challenging addition on basis of deposit before section 139(1) due date is rejected insofar as statutory due dates under welfare laws were missed. Issue 2: Effect of statutory due date falling on holiday/Sunday - applicability of Section 10, General Clauses Act, 1897 Legal framework: Section 10 of the General Clauses Act, 1897 provides that where an act is directed or allowed to be done on a certain day or within a prescribed period and the relevant office is closed on that day, the act shall be considered done in due time if done on the next day the office is open (subject to exceptions such as the Limitation Act). Precedent Treatment: Coordinate Bench decisions applying the holiday-next-day principle were considered; however the Tribunal grounds its ruling directly on Section 10. The Tribunal treats the General Clauses Act provision as applicable to statutory deposit obligations under central Acts and regulations. Interpretation and reasoning: Where the statutory due date for deposit under PF/ESI Acts falls on a holiday/Sunday and the employer deposits on the next working day, such deposit is to be regarded as within the prescribed due date by application of Section 10. The Tribunal directed the assessing officer to verify factual deposit dates and allow deduction for amounts demonstrably deposited on the next working day where the due date was a holiday. Ratio vs. Obiter: The application of Section 10 to treat next-day deposits as within time in the holiday context is ratio for cases with identical facts. Discussion of Coordinate Bench decisions is obiter in the sense that the primary legal basis is Section 10. Conclusions: Where due date fell on Sunday/holiday and payment was made on next working day, the deposit will be treated as within time provided factual verification confirms deposit on that next working day; the AO is directed to verify and allow deduction for such amounts. Issue 3: Delay due to technical failure of online payment systems and official extensions (e.g., COVID-19) - proof required and verification Legal framework: The statutory due date under the welfare Acts governs the obligation. Administrative directions, circulars, or notifications extending due dates or recognizing technical disruptions can alter the applicable due date; evidentiary burden lies on the taxpayer to establish applicability. Precedent Treatment: The Tribunal recognizes ITAT coordinate bench decisions favourable to taxpayers on facts of holiday/extension/technical failure but emphasizes that such decisions do not displace the requirement of proof and verification. The Supreme Court authority on non-applicability of section 43B remains binding as to substance. Interpretation and reasoning: The Tribunal held that where delay is attributed to technical failure of online payment system, the assessing officer may allow relief only if there is evidence of an official extension or directive acknowledging the disruption or permitting later payments. Similarly, where a statutory authority issued an explicit extension (e.g., COVID-19 extension of PF due date), the assessee must produce the notification and evidence of payment within the extended period. Absent such demonstrable proof, the Tribunal will not accept unilateral assertions of technical failure as sufficient to treat late payments as within the due date. Ratio vs. Obiter: The principle that administrative extensions or official directives must be proved and verified by the AO before allowing deduction is ratio. Observations about the policy purpose (preventing misuse of employee funds) and the general reluctance to accept technical-failure assertions without documentary support are explanatory but operative. Conclusions: The assessing officer is directed to verify documentary proof of any official extension or instruction pertaining to technical failures and, if satisfied, to allow deduction for the relevant amounts. Where the taxpayer produces the official notification and proof of payment within the extended period, deduction shall be allowed; otherwise, the addition stands. Cross-references and Overall Disposition The Supreme Court pronouncement that employees' contributions are not covered by section 43B and must be deposited by statutory due dates governs the ultimate legal position and is applied to confirm additions where deposits were untimely. Exceptions are available (and were partly accepted) where: (a) the due date fell on a holiday and the payment was made on the next working day (Section 10, General Clauses Act), (b) an official extension (such as COVID-19 related) covered the delayed date and is proved, or (c) an administrative direction recognizing payment-lane disruption exists and is established. The Tribunal directed remand/verification by the assessing officer for specific amounts falling within these exception categories and partly allowed the appeal accordingly.