The Delhi Bench of the Income Tax Appellate Tribunal ( ITAT ) ruled that employers should deposit Employee State Insurance ( ESI ) and Provident Fund ( PF ) on or before the due date as a condition for claiming income tax deduction 36(1)(va) of the Income Tax Act,1961 which deals with the deductions claimed by the businesses for employees contributions to welfare funds.
Assessee, Kanwar Enterprises Pvt. Ltd., a construction-based enterprise, the employer paid his income tax return filing for the assessment year 2018-19. The revenue department disallowed his deduction on Rs.16,75,602/- under Section 2(24)(x) r.w.s.36(1)(va) which deals with the deductions claimed by the businesses for employee’s contributions to welfare funds and Rs.1,83,24,900/- on account of ICDS adjustment under Section 145(2) of Income tax legislation.
Aggrieved by this decision, the assessee appealed before the Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A) allowed the deduction of Rs.1,83,24,900/- on account of ICDS adjustment under Section 145(2) but refused the deduction of Rs.16,75,602/- under Section 2(24)(x) r.w.s.36(1)(va) of Income tax statute due to the delayed payment of the ESI/EPF.
The Tribunal noted the Supreme Court’s decision in the case of Checkmate Services Pvt. Ltd. vs. CIT-I, which discussed the employer’s deposit of the payment of ESI/EPF beyond the due dates described under the relevant provisions would be considered as income which leads to disallowance of the tax deduction.
The Supreme Court highlighted the difference between the employer’s and employee’s contributions in the case of Checkmate Services Pvt. Ltd. vs. CIT-I. The employer’s contribution is paid out from his income whereas the employee’s contribution is deducted from their salary and held in the trust of the employer. Since it was deducted the employer must deposit the fund on or before the due date. The non-obstante clause in Section 43B would not absolve the employer from their liability to deposit the fund on or before the due date.
Considering the ruling of apex court in the above-mentioned case, the division bench of ITAT Saktijit Dey (VP), Dr. B. R. R. Kumar (Accountant Member) observed that none appeared for the assessee’s side and the appeal was dismissed on the ground that the assessee deposited the ESI/EPF beyond the due date so he was disallowed from the deductions.
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