Residuary Provisions under Income Tax Act not Applicable to Disallowances for Late Payment of EPF & ESI: ITAT [Read Order]

The Chennai Bench of Income Tax Appellate Tribunal (ITAT) held that the residuary provisions which are present under the Income Tax Act are not applicable to disallowances for late payment of Employees’ Provident Fund (EPF) and Employees’ State Insurance (ESI).

The assessee in this case was disallowed by the Assessing Officer (AO) for late payment of Employees’ Provident Fund (EPF) and Employees’ State Insurance (ESI) contribution aggregating to Rs. 79.47 Lacs. under Section 36(v)(x) reference with section 2(24)(x) of Income Tax Act, 1961. The default has been tabulated by Assessing Officer (AO) in the opening para of the assessment order passed under Section 143(3) r. w. s. 263 of the Act. The fact that there is a default in payment under respective acts, remains undisputed before the Income Tax Appellate Tribunal (ITAT).

The Commissioner of Income-tax (Appeals) CIT (A) has confirmed the disallowances by relying upon a recent decision of the Supreme Court in the case of Checkmate Services P. Ltd. Vs CIT (Civil Appeal No.2833 of 2016 dated 12.10.2022). The appeal before the Chennai bench of the Income Tax Appellate Tribunal (ITAT)  was decided against the assessee.

The Authorized Representative (AR) has urged for similar directions which we are not inclined to accept since the disallowance is covered under specific Sec.36(1)(va) and therefore, the deduction could not be claimed alternatively under residuary Section 37(1).

The one-bench comprising of Manoj Kumar Aggarwal (Accountant Member) observed that provisions of Section 37(1) are residuary provisions. Any expenditure which falls within the ambit of Sec.30 to 36 and if it is found not to be fulfilling the conditions laid under those provisions, the same could not be claimed alternatively u/s 37(1).

Hence the reliance of the Authorized Representative (AR) on the decision of High Court of Kerala in CIT vs. High Land Produce Co. Ltd. (102 ITR 803), as well as the decision of High Court of Gujarat in Khimji Visram & Sons (Gujarat) Pvt. Ltd. vs. CIT (79 Taxman 112), render no assistance to the case of the assessee.

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