2023 (10) TMI 1421 - AT - Income Tax

Disallowance u/s.36(1)(va) - late deposit of employee's contribution to ESI and EPF - intimation u/s.143(1) - HELD THAT - The net effect of the amendments made to sections 36(1)(va) and 43B, which are patently clarificatory in nature, is that deduction in respect of employees share of ESI/EPF etc. will be allowed to the employer only if it is actually paid by the stipulated date under the respective Acts. In case, such an amount is paid beyond the due date under the respective Acts but before the due date u/s.139(1)the deduction is lost forever. Notwithstanding the above, the share of employer s contribution to recognized provident fund etc. continues to get deducted in the same previous year even if it is paid beyond the due date under the respective Acts but before the due date for filing of return u/s.139(1). Thus, hold that the authorities below were justified in not allowing deduction u/s.36(1)(va) in respect of employee s contribution to ESI/EPF. AR submitted that while making the disallowance, the CPC, Bengaluru considered not only the contribution by the employee s to these funds but also the contribution made by the employer as well - As we agree with the contention of the ld AR that deduction towards the employer s share of ESI/EPF etc. needs to be allowed in the year under consideration if the payment is made before the time granted u/s.139(1) of the Act for filing of the return. Therefore, set- aside the impugned order to this extent and remit the matter to the file of the AO for examining the details and restricting the disallowance in above terms. Appeal is allowed for statistical purposes.

Summary

Issues:
Confirmation of disallowance u/s.36(1)(va) for late deposit of employee's contribution to ESI and EPF.

Analysis:
The appeal concerns the confirmation of disallowance u/s.36(1)(va) amounting to Rs. 7,07,429/- by the ADIT, CPC, Bengaluru for late deposit of employee's contribution to ESI and EPF. The issue revolves around the due date for depositing employee contributions under the respective Acts. The Hon'ble Supreme Court judgment in the case of Checkmate Services Pvt. Ltd. has established that the delay in depositing employee's share beyond the prescribed due date must be confirmed, even if paid before the due date u/s.139(1) of the Act. The Finance Act, 2021 introduced Explanation 1 and 2 to section 36(1)(va), clarifying the due date as stipulated under the Acts and excluding the applicability of section 43B for determining the due date. These amendments emphasize that deductions for employee's share of ESI/EPF are allowed only if paid by the stipulated date under the Acts.

The appellant argued that the disallowance by CPC, Bengaluru included both employee and employer contributions, with the latter eligible for deduction under section 43B if paid before the due date u/s.139(1). The Tribunal agreed that employer's share of ESI/EPF should be allowed as a deduction if paid before the deadline for filing returns. Consequently, the impugned order was set aside, directing the AO to reexamine and limit the disallowance accordingly. The appellant is granted a fair hearing in this regard. The decision allows the appeal for statistical purposes, emphasizing the distinction between employee and employer contributions in terms of allowable deductions.

In conclusion, the judgment addresses the issue of disallowance under section 36(1)(va) for late deposit of employee's contribution to ESI and EPF. It highlights the legal precedents set by the Hon'ble Supreme Court and the clarifications introduced by the Finance Act, 2021 regarding due dates and deductions. The Tribunal's decision provides clarity on the treatment of employer's contributions and emphasizes the importance of timely payments for allowable deductions, ensuring a fair opportunity for the appellant to present their case.