2022 (11) TMI 123 - AT - Income Tax

Delayed payment of employee contribution to Employees State Insurance and Provident Fund u/s. 43B r.w.s. 36(1)(va) - HELD THAT - The employees contribution to PF and ESI should be remitted before the due date as per Explanation to section 36(1)(va) i.e. on or before the due date under the relevant employee welfare legislation like PF Act, ESI Act etc., for the same to be otherwise allowable u/s.43B. We therefore see no reason to interfere with the order of the CIT(Appeals). The grounds taken by the assessee on this issue are dismissed.

Summary

Issues: Disallowance of delayed payment of employee contribution to Employees State Insurance and Provident Fund under section 43B r.w.s. 36(1)(va) of the Income-tax Act, 1961.

Analysis:
1. The appeal concerns the disallowance of delayed payment of employee contribution to PF and ESI under section 43B r.w.s. 36(1)(va) of the Act for the assessment year 2018-19.

2. The assessee, an individual, declared income from business or profession and claimed a refund. The Assessing Officer disallowed Rs. 75,57,462 under section 43B towards delayed remittance contribution to PF and ESI. The CIT(Appeals) partially allowed relief towards employers' contribution but confirmed the disallowance towards employees' contribution.

3. The key contention was whether the payment of employee contribution, though belated, before the due date of filing the return of income u/s. 139(1) of the Act, was allowable u/s. 43B. The Hon'ble Supreme Court's decision in the case of Checkmate Services (P.) Ltd. Vs CIT-1 clarified the distinction between employer's and employees' contributions, emphasizing the necessity of depositing employees' contributions before the due date for deduction under section 36(1)(va).

4. Following the Supreme Court's ruling, the ITAT held that employees' contribution to PF and ESI must be remitted before the due date under relevant employee welfare legislation for it to be allowable under section 43B. Consequently, the appeal by the assessee was dismissed, upholding the order of the CIT(Appeals).

5. The decision reaffirms the importance of timely remittance of employees' contributions to welfare funds for claiming deductions under section 43B, aligning with the legislative intent to ensure timely payments and prevent employers from retaining such amounts for extended periods.