Disallowance under Section 36(1)(va) was upheld since the employee contribution wasn’t deposited by the due date

This appeal is made in opposition to the decision made by the CIT (Appeals), National Faceless Appeal Centre, Delhi [NFAC], on December 27, 2012, as indicated by DIN & Order No. ITBA/NFAC/S/250/2022-23/1048280517(1) for the AY 2018–19.

The sole issue involved in this appeal is with regard to disallowance u/s. 36(1)(va) in order dated 22.08.2019 u/s. 143(1) of the Income-tax Act, 1961 [the Act] and confirmed by the CIT(Appeals).

The assessee is a partnership firm engaged in the business of food preparation and sweets etc. It filed return of income for AY 2018-19 declaring total income of Rs.1,04,89,720. The return was processed u/s. 143(1) of the Act determining total income of Rs.1,22,14,931, disallowing Rs.17,25,211 towards delay in payment of employees contribution to PF and ESI u/s. 36(1)(va) of the Act. 4. On appeal before the CIT(Appeals), the assessee submitted that out of Rs.17,25,211, a sum of Rs.15,55,547 was paid within the due date as per the EPF & ESI Acts and the balance of Rs.1,29,106/- was paid within the due date for filing return as per 139(1) of the Act. However, there was inadvertent error while filing Form 3CD in mentioning the correct qualifying dates of remittances. The correct details of contribution to EPF and ESI are as under:-

Deduction for the month	Employee PF Contribution	Due Date	Date of Remittance
April, 2017	3,32,962	15.05.2017	14.05.2017
May, 2017	3,23,432	15.06.2017	14.06.2017
August, 2017	3,90,309	15.09.2017	14.09.2017
September, 2017	4,59,067	15.10.2017	15.10.2017
Total	14,97,770

Deduction for the month	Employee PF Contribution	Due Date	Date of Remittance
June, 2017	57,777	15.07.2017	15.07.2017

In view of the above, it was submitted that the total amount of Rs. 15,55,547 has been deposited within the time prescribed under the respective Acts and therefore no addition is warranted to that extent.

The assessee also submitted that there was a delay in remittance of EPF & ESI under the respective Acts, but the remittance was made before the due date for filing return of income u/s. 139(1) of the Act, the details of which are as follows and hence no disallowance is called for:-

Deduction for the month	Employee PF Contribution	Due Date	Date of Remittance
Sept. 2017	10,020	15.10.2017	20.4.2018
Oct. 2017	10,089	15.11.2017	20.4.2018
Nov. 2017	10,069	15.12.2017	20.4.2018
Jan. 2018	1,334	15.02.2018	01.9.2018
Feb. 2018	3,839	15.03.2018	01.9.2018
Mar. 2018	5,207	15.04.2018	01.9.2018
Total	40,588

Deduction for the month	Employee PF Contribution	Due Date	Date of Remittance
Aug. 2017	58,406	15.09.2017	21.09.2017
Sept. 2017	70,700	15.10.2017	19.10.2017
Total	1,29,106

Observation of the court

In view of the above, we remit this issue to the AO with a direction to examine and decide the issue in the light of the above Accordingly this issue is allowed for statistical purpose.

As far as the employees contribution to EPF & ESI the details of which are extracted in para 6 of this order to the extent of Rs.40,588/- is concerned, the submission of the assessee is that these remittances were within the due date for filing return u/s. 139(1) of the Act, though they were belated payments under the respective Acts and hence no disallowance is called for. This issue is settled by the Hon’ble Supreme Court judgment in Checkmate Services (P.) Ltd. Vs CIT-1, [2022] 143 com 1 78 (SC) wherein it is held that that Section 43B(b) does not cover employees’ contributions to PF, ESI etc., deducted by employer from salaries of employees and that employees contribution has to be deposited within the due date u/s 36(1)(va) i.e. due dates under the relevant employee welfare legislation like PF Act, ESI Act etc. failing which the same would be treated as income in the hands of the employer u/s.2(24)(x). Respectfully following this judgment, we sustain the disallowance to the extent of Rs. 40,588/- towards belated remittances towards employees contribution to EPF & ESI under the respective Acts.

In the result, the appeal by the assessee is partly allowed for statistical purposes. Pronounced in the open court on this 02nd day of May, 2023.