Admissibility of Employees' Contribution Payment of ESIc/PF Beyond the Due Date: ITAT remands the matter to AO to clarify the usage of ‘every month’ [Read Order]

This appeal by the assessee is directed against order dated 15.11.2022 passed by the Commissioner of Income-tax – National Faceless Appeal Centre (NFAC) for assessment year 2020-21 in relation to the rectification order passed by the Assessing Officer under Section 154 of the Income-tax Act, 1961.

The assessee is aggrieved with the disallowance upheld by the CIT(A) in respect of the employee’s contribution to ESI/PF, which was made by the CPC as an adjustment and further sustained in rectification order under Section 154 of the Income Tax Act. The CIT(A) had upheld the disallowance in view of binding precedent of the Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd. v. CIT.

The assessee was engaged in providing manpower securities services etc. He submitted that salary/ remuneration payment to staff for the month was paid in subsequent months, preferably before 7th day of next month.

For example, payment for the month of April 2019 was paid on or before 7th of May 2019. The Counsel referred to the provisions of Section 36(1)(va) of the Income Tax Act and submitted that employee's contribution was deposited as per the due date prescribed under the relevant Act. The Counsel further referred to the Employee Provident Fund (EPF) Scheme, 1952 formulated under the provisions of the relevant Act.

The Counsel referred to the above clause and submitted that the employer is required to deposit the PF/ESI contribution of the assessee within 15 days of the close of every month. According to the assessee, the term 'every month' is the month of payment of the salary/remuneration to the employee and not the month for which salary or wages were due to the employee. He accordingly submitted that if the term 'month' is taken as the month of payment of the wages/ salary to the employee, then all the payments of the employee's contribution are within the due date.

On the contrary, the Departmental Representative submitted that the term 'every month' mentioned in Section 38 of the Employees Contribution Scheme, 1952 should be interpreted as

month for which salary/ remuneration is due to the employee. He submitted that for clarification on the issue-in-dispute of term 'month', matter may be restored to the file of the Assessing Officer and he may be directed to verify the term 'month' from the respective provident fund or ESI authorities.

The Bench opined that, it will be appropriate if the term 'every month' specified in Provident Fund scheme, whether it is the month for which salary/ wages are due or month of the payment is referred to Relevant Authorities for finding out with reference to any judicial precedent in respect of provisions of the relevant Act.

Accordingly, the issue was restored back to the file of the Assessing Officer with the direction to find out from the relevant PF authorities about the term 'every month' as mentioned in Clause 38 of the Employees Provident Fund Scheme (EPF Scheme). He was also directed to find out the same from the ESI Authorities.

In the result, the appeal of the assessee was allowed for statistical purposes by the two-member bench of Judicial Member Aby T Varkey and Accountant Member Om Prakash Kant.

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