2022 (12) TMI 537 - AT - Income Tax

Disallowance on delayed payment of employee s contribution to ESI and PF - Payement beyond the due date by invoking the provisions of section 36(1)(va) - disallowance u/s 143(1)(a) - HELD THAT - It is very clear from the intimation u/s 143(1)(a) that while issuing intimation, the reply of the assessee has been duly considered and therefore the period of 30 days becomes irrelevant. In the facts and circumstances of the given case, we are of the view that the disallowance u/s 143(1)(a) is valid in view of the decision in the case of Checkmate services 2022 (10) TMI 617 - SUPREME COURT . Assessee will not be entitled to deduction of belated payment of ESI and PF of employees share of contribution as per the provision to section 36(1)(va) of the Act. We find no merits in this appeal and accordingly appeal filed by the assessee is dismissed.

Summary

Issues:
1. Disallowance on delayed payment of employee's contribution to ESI and PF.
2. Validity of disallowance under section 143(1)(a) of the Income Tax Act.

Analysis:
1. The primary issue in this appeal was whether the Revenue authorities were justified in making a disallowance on delayed payment of employee's contribution to ESI and PF by the assessee. The decision of the Hon'ble Supreme Court in the case of CHECKMATE SERVICES PVT LTD VS CIT-1 clarified that the provisions of section 36(1)(va) and Section 43B(b) operate differently for employee and employer contributions. The Court held that failure to pay employee's contribution on time permanently negates the employer's claim for deduction under section 36(1)(va). In contrast, delay in employer's contribution leads to deferment of deduction under section 43B. Based on this decision, the disallowance made by the Revenue authorities was deemed justified.

2. The second issue revolved around the validity of the disallowance under section 143(1)(a) of the Act. The assessee argued that the adjustment made without considering their response was invalid. However, the intimation under section 143(1)(a) clearly indicated that the assessee's response had been taken into account. The second proviso to section 143(1)(a) specifies that adjustments can be made after due consideration of the assessee's response, without a specific time frame if a response is received. Therefore, the argument that the adjustment was invalid due to the timing of the response was deemed meritless. The Tribunal concluded that the disallowance was valid, and the assessee was not entitled to deduction for the belated payment of ESI and PF contributions as per section 36(1)(va) of the Act.

In conclusion, the appeal filed by the assessee was dismissed, and the disallowance on delayed payment of employee's contribution to ESI and PF was upheld as justified under the Income Tax Act. The Tribunal found no merits in the appeal, and the decision was pronounced in the open court accordingly.