PF/ESI employee contributions remanded to AO to verify due dates and recompute disallowance u/s 36(1)(va)

ITAT Delhi held that the lower authorities had not examined whether the assessee's liability to deposit employees' PF/ESI contributions arose only upon actual disbursement of salary and whether such contributions were deposited within the due dates prescribed under the respective Acts. Without adjudicating the issue on merits, ITAT remanded the matter to the AO to determine the actual due dates for payment, verify supporting documents, and recompute any disallowance accordingly. The assessee's appeal was treated as partly allowed for statistical purposes.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether disallowance of employees' contribution to PF and ESI, made on the ground of delayed payment, was justified when the assessee claimed that deposits were made within the due dates prescribed under the respective Acts.

1.2 Whether the matter required remand to the Assessing Officer for proper determination of the "due date" under the PF/ESI laws and verification of supporting documents.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 & 2: Disallowance of employees' PF/ESI contribution on alleged late payment and necessity of remand to the Assessing Officer

Interpretation and reasoning

2.1 The assessee contended that employees' contributions to PF and ESI were deposited within the due dates prescribed in the relevant labour welfare statutes and that the lower authorities had incorrectly calculated the due dates and failed to consider the evidentiary documents produced.

2.2 The Department relied on the decision of the Supreme Court in the matter concerning late payment of employees' contributions (Checkmate Services Pvt. Ltd. vs. CIT), to support the disallowance.

2.3 The Tribunal noted that in an identical factual situation, a co-ordinate bench had, in a prior appeal, restored the matter to the Assessing Officer for fresh examination. In that earlier decision (and decisions followed therein), the Tribunal had:

(a) Recognised that disallowance of employees' contribution to PF/ESI for breach of section 36(1)(va) was sustainable in principle in light of the Supreme Court judgment.

(b) Declined to allow the same amount as a deduction under section 37(1) on the reasoning that expenditure specifically governed by section 36(1)(va) cannot be claimed under the general residuary provision, as clarified by the Supreme Court.

(c) Noted a specific plea that the "due date" under the PF/ESI laws should be computed with reference to the month in which salary is actually disbursed, and not merely the calendar month for which salary is payable, drawing on earlier Tribunal precedent (Kanoi Paper & Industries Ltd. vs. ACIT).

(d) Observed that this factual and legal aspect regarding the correct computation of the due date under the PF/ESI Acts had not been examined by the Assessing Officer or the first appellate authority, and therefore remitted the matter for such examination.

2.4 In the present appeal, the Tribunal found the controversy to be similar, namely: whether, on proper computation of "due date" under the respective Acts and upon verification of the assessee's evidence, there was in fact any delay warranting disallowance.

2.5 Following the ratio of the co-ordinate bench decisions cited, the Tribunal considered it appropriate to remit the issue to the Assessing Officer for:

(a) Calculation of the actual due dates for payment of employees' contributions to PF/ESI as per the prescriptions of the respective Acts; and

(b) Verification of the documents and evidence produced by the assessee in support of the claim that the payments were made within such due dates.

Conclusions

2.6 The disallowance of employees' contribution to PF/ESI was not finally adjudicated on merits by the Tribunal; instead, the matter was remanded to the Assessing Officer to recompute the due dates under the relevant PF/ESI laws and to verify the assessee's supporting documents.

2.7 The Tribunal directed the Assessing Officer to decide the issue afresh in accordance with law, after affording adequate opportunity of being heard and permitting the assessee to furnish all necessary information and evidence.

2.8 The appeal was treated as partly allowed for statistical purposes.

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