2024 (6) TMI 1401 - AT - Income Tax

Disallowance of Employee's Contribution to ESI and PF u/s 36(1)(va) - payment of contribution of employee s share should be made within 15 days from the end of the month during which disbursement of Salary is made - HELD THAT - In the light of aforesaid discussion relying on this Tribunal s decision in the case of Manikandan Vazhukkapara Kumaran 2023 (11) TMI 1294 - ITAT BANGALORE we are of the Opinion that plea of the assessee that the payment of contribution of employee s share should be made within 15 days from the end of the month during which disbursement of Salary cannot be accepted - Appeal filed by the assessee is dismissed.

Summary

Issues Involved:
1. Disallowance of Employee's Contribution to ESI and PF under Section 36(1)(va) of the IT Act.

Issue-wise Detailed Analysis:

1. Disallowance of Employee's Contribution to ESI and PF under Section 36(1)(va) of the IT Act:

The sole issue involved in this appeal concerns the disallowance under Section 36(1)(va) in the intimation dated 15.05.2020 passed under Section 143(1) of the IT Act, 1961, and confirmed by the Addl./JCIT(A). The assessee contended that the employee's share to ESI and PF was paid within the due date as per the EPF and ESI Act. The assessee relied on the decision of the Hon'ble Calcutta High Court in the case of Kanoi Paper Industries Ltd. vs. CIT and the ITAT "B" Bench, Bengaluru in the case of MTR Maiyas vs. ITO, asserting that the payment was made within 15 days from the end of the month during which the salary was disbursed. However, the Ld. DR supported the order of the Appellate Authority and relied on the decision of the Hon'ble Supreme Court in the case of Checkmate Services Ltd. vs. CIT, which held that the deduction under Section 36(1)(va) cannot be claimed if the deposit is made after the due date as per the PF & ESI Act, even if it is deposited within the due date of filing the return under Section 43B of the IT Act, 1961.

Upon hearing the rival submissions and perusing the material available on record, the Tribunal noted that the issue has been decided in the case of Manikandan Vazhukkapara Kumaran (ITA No.577/Bang/2023) for the Assessment Year 2018-19. The Tribunal observed that the employer is required to deduct the employee's contribution before paying the wages and deposit the same within 15 days of the close of the month. The argument that the due date for deposit is deferred by the delay in paying the salary was not accepted. The Tribunal referenced Section 38 of the Employees Provident Fund and Miscellaneous Provisions Act, 1952, which mandates the deposit of contributions within 15 days of the close of the month for which the wages are payable.

The Tribunal further noted that the Hon'ble Supreme Court in Checkmate Services Pvt. Ltd. clarified that any delay in depositing the employee's contribution would result in disallowance under Section 36(1)(va). The Tribunal dismissed the argument that the audit report was erroneous without any evidence from the tax auditor. Consequently, the Tribunal upheld the disallowance of the employee's contribution to ESI and PF, dismissing Grounds No. 2 and 3 of the Assessee.

Conclusion:
In conclusion, the appeal filed by the assessee was dismissed, with the Tribunal affirming that the payment of the employee's share should be made within 15 days from the end of the month during which the salary is disbursed, as per the provisions of the Employees Provident Fund and Miscellaneous Provisions Act, 1952. The decision of the Hon'ble Supreme Court in Checkmate Services Pvt. Ltd. was pivotal in determining the outcome.