2024 (8) TMI 536 - AT - Income Tax

Payment made u/s 36(1)(va) - delayed deposit of employees contribution of Provident Fund (PF) and ESI - delay in deposit of PF and ESI of the employees share was for the month of April 2020 and May 2020 - due date of payment was falling in the period of Covid Pandemic - complete lock down and on account of operational and economic difficulties, the payment in due date was not in the control of the appellant. HELD THAT - When the EPF Organisation itself has waived off the levy of penal damages for delayed payment during the period of lockdown by issuing the aforesaid circular, there is no question of treating the delay which occurred during the period of lockdown detrimental to the assessee under the Act, more specifically under the explanation to section 36(1)(va) of the Act. The delay in deposit of PF and ESI of the employees share is for the month of April 2020 and May 2020. These months fell in the period of lockdown when pandemic of COVID-19 was at its peak. Due dates to deposit for these two months were 15.05.2020 and 15.06.2020 as per the relevant enactments. Assessee deposited the delayed amount in the month of June 2020 when there was relaxation in the lockdown and banking was permitted. There is no mischief on the part of the assessee in holding the employees contribution for long periods as contemplated in the memorandum explaining the provisions introduced in the Finance Bill, 1987 and CBDT circular (supra) and dealt in Checkmate Services 2022 (10) TMI 617 - SUPREME COURT . In fact, assessee demonstrated its vigilance in depositing the impugned amounts at the first opportunity it got when the relaxation was given in the lockdown. Also, for all the subsequent months, the deposits have been on or before the prescribed due dates under the relevant enactments. Thus, in the present case under its peculiar set of facts, there cannot be any adverse effect on the assessee of not depositing the employees contribution of EPF and ESI within the meaning of section 36(1)(va) of the Act when the relevant enactment itself had given a waiver from levy of penal damages for the delay in deposit during the lockdown period . We delete the addition so made. Grounds taken by the assessee in this respect are allowed.

Summary

Issues:
1. Disallowance of payment made under section 36(1)(va) for Assessment Year 2021-22 due to Covid Pandemic.
2. Violation of principle of natural justice by Ld. CIT(A) in passing order in a hurry.
3. Interpretation of Circular by Employee's Provident Fund Organisation relaxing penalties for delayed deposits during lockdown.
4. Effect of delay in depositing employees' contribution to PF and ESI during lockdown on deduction under section 36(1)(va) of the Income-tax Act.

Issue 1:
The appeal concerned the disallowance of a payment made under section 36(1)(va) for Assessment Year 2021-22 due to the Covid Pandemic. The delay in depositing employees' share of Provident Fund and ESI during the lockdown period was the primary issue. The appellant argued that the circumstances of the lockdown and operational difficulties were beyond their control, justifying the delayed payment. The Ld. CIT(A) disallowed the deduction based on the decision of the Hon'ble Supreme Court in the case of Checkmate Services (P) Ltd. v. CIT. The Tribunal analyzed the facts, considering the relaxation provided by the EPF Organisation during the lockdown period and concluded that the delay in depositing the contributions during the lockdown did not have an adverse effect on the appellant under section 36(1)(va) of the Act.

Issue 2:
The appellant raised a concern regarding the violation of the principle of natural justice by the Ld. CIT(A) in passing the order hastily. The appellant contended that their submissions were ignored, and the order was passed before the due date mentioned in the notice. However, the Tribunal did not find this procedural irregularity to be substantial in the context of the substantive issues raised in the appeal.

Issue 3:
The interpretation of the circular issued by the Employee's Provident Fund Organisation, relaxing penalties for delayed deposits during the lockdown, was a crucial aspect of the case. The appellant argued that this circular provided relief to employers facing difficulties in timely depositing contributions due to the lockdown. The Tribunal considered this circular along with the decision of the Hon'ble Supreme Court in the Checkmate Services case to determine the impact of the delayed deposits on the deduction under section 36(1)(va) of the Act.

Issue 4:
The effect of the delay in depositing employees' contribution to PF and ESI during the lockdown on the deduction under section 36(1)(va) of the Income-tax Act was the central issue analyzed by the Tribunal. The Tribunal examined the provisions of the Act, relevant circulars, and the specific circumstances of the case to conclude that the delay during the lockdown, where penalties were waived, did not disentitle the appellant from claiming the deduction. The Tribunal allowed the appeal, emphasizing that its decision was specific to the unique facts of the case and should not set a precedent.

This detailed analysis of the judgment provides insights into the various issues raised, the arguments presented by the parties, and the Tribunal's reasoning in arriving at its decision.