Delayed PF & ESIC Payments: ITAT remands Matter for Production of Payment Challans [Read Order]

The Bangalore Income Tax Appellate Tribunal (ITAT) Bench remanded the Matter to the Assessing Officer (AO) for Production of Payment Challans in regard to the Delayed PF and ESIC Payments.

The Appeal was filed by the assessee, Thamanna against the order dated 23.04.2024 of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [NFAC], for the AY 2017-18.

The assessee is an individual engaged in the contract business of garbage cleaning for Mysore City Corporation and MUDA. The Assessee filed return of income declaring income of Rs.56,23,730.The case was selected for scrutiny under CASS and statutory notices were issued to the assessee.

During the assessment proceedings, the AO noted that the assessee has claimed an amount of Rs.1,91,50,842 towards EPF paid and debited in the P&L account, out of which certain amounts were paid after the due date as contemplated by PF Scheme.

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Further, the assessee has claimed an amount of Rs.49,11,683 towards ESIC and some of the amounts were paid after the due date. Accordingly a proposal for disallowance of the amount u/s 36(1)(va) was sent and the assessee relying on certain judgments filed objections.

However, the AO after considering the assessee’s submissions made the disallowance towards delayed deposits to EPF & ESI and added back the amount to the total income. Aggrieved by the order, the assessee filed an appeal before the First Appellate Authority (FAA). But the Learned FAA after discussing the issue and relying on the Hon’ble Apex Court judgment in the case of Checkmate Services P. Ltd. v. CIT dismissed the appeal of the assessee.

The AR reiterated the submissions and submitted that the due date for payment to EPF and ESI should be considered from the date of payment of salary.

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The assessee is engaged in manpower supply and is totally dependent upon payments received from the contractee, so if the contractee makes late payment, accordingly shall the salary be paid. The contractee did not pay the actual amount at the end of each month so that the assessee would be able to pay salary as well as statutory dues within time.

She also submitted that during the course of assessment proceedings, the complete challans for payments to ESI & EPF were not submitted. Therefore she requested that the matter may be remanded back to the AO for examination in the light of the judgments in the case of Manikandan Vazhukkapara Kumaran in ITA No.806/Bang/2023.

On the other hand, the DR relied on the order of lower authorities and submitted that the AO has made detailed analysis which is clear from para 2 & 3 of the assessment order regarding the employee share, due date of payment and actual date of payment. Also submitted that the issue was settled by the Hon’ble Apex Court in the case of Checkmate Services P. Ltd.

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After considering the above submissions the court was compelled to analyze provisions of the Provident Fund Act. Similar issue was decided in ITA No. 577/Bang/2023 of the coordinate bench of the Tribunal.

The ITAT Bangalore Bench comprising Keshav Dubey (Judicial Member) and Laxmi Prasad Sahu (Accountant Member) observed that it was noted during the hearing that the ITAT Jodhpur Bench in case of Tarun Construction Co. v. ITO has discussed the issue in detail. So from the decision of the above case, the court held that the disallowance made by the lower authorities are justified. Also found in Form 3CD that the tax auditor has not reported the mistake pointed out by the revenue authorities in sl. No.20(b) of Form 3CD. 

Also noted that since during the course of hearing the AR submitted that some of the challans for payment could not be produced, therefore for the purpose of verification, the court referred the matter back to the AO to decide as per law.

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The court directed the assessee to produce the necessary challans for proof of payments in light of Section 36(1)(va) of the Act. Also the assessee shall be given reasonable opportunity of hearing and assessee is directed not to seek unnecessary adjournments.

 In result, the appeal of assessee is allowed for statistical purposes.

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