Timely Deposit of Employee PF and ESI Contributions Required for Deduction u/s 36(1)(va) of Income Tax Act: ITAT [Read Order]

The Ahmedabad Bench of Income Tax Appellate Tribunal ( ITAT ) ruled that timely deposit of employee Provident Fund ( PF ) and Employees' State Insurance ( ESI ) contributions is required for deduction under Section 36(1)(va) of the Income Tax Act,1961.

Schaeffler India Ltd., appellant-assessee,challenged the order passed by the Commissioner of Income Tax (Appeals)[CIT(A)] for the AY 2019-20  raising issues about not being given a proper hearing and the disallowance of ₹93,17,864 for late employee PF and ESI contributions under Section 36(1)(va).

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The assessee argued that the contributions were deposited on time and that any delay was due to genuine reasons. They also disagreed with the applicability of the explanation to Section 36(1)(va) for the year and the interest charged under Section 234C of the Act.

The main issue is whether the CIT(A) made an error in confirming the disallowance of ₹93,17,864 for the late payment of employee PF and ESIC contributions in the intimation under Section 143(1) of the Act.

The assessee's counsel referred to the cases of Arihant Automobiles vs. ITO and Jasbir Singh vs. ADIT, where it was decided that disallowance for late deposit of EPF/ESIC cannot be made through intimation under section 143(1) of the Act.

The tribunal was unable to agree with the argument of the assessee’s counsel. It noted that in the case of Adani Infrastructure and Developers (P.) Ltd. 152 taxmann.com 564 (Ahmedabad - Trib.), the ITAT had decided the issue against the assessee on similar facts.

They referred to the Supreme Court’s decision in Checkmate Services (P.) Ltd. and Harrisons Malayalam Ltd., which clarified that for assessment years prior to AY 2021-22, the non-obstante clause under Section 43B did not apply to amounts held in trust, such as employee contributions. The Supreme Court had stated that the employer’s liability to deposit employee contributions on or before the due date for deduction could not be absolved.

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The two member bench comprising Suddhartha Nautiyal ( Judicial Member ) and Annapurna Gupta ( Accountant Member ) also referred to various other ITAT decisions, including Ms. Nalina Dyave Gowda and Cemetile Industries, where disallowance of late deposits of employee contributions to EPF and ESI was upheld under Section 36(1)(va) and Section 143(1)(a). The Tribunal observed that these decisions were consistent with the Supreme Court’s rulings.

In view of these observations and the Supreme Court’s decisions, the tribunal dismissed the assessee’s appeal.

To Read the full text of the Order CLICK HERE

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