Delayed EPF/ESIC Payments Not Deductible: ITAT Upholds Rs 12.91 Lakh Disallowance u/s 36(1)(va) r.w.s 43B [Read Order]

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) recently dismissed an appeal filed by an assessee challenging the disallowance of Rs.12,91,486 under section 36(1)(va) read with section 43B of the Income Tax Act, 1961, in relation to late payment of employee contributions to the Employees’ Provident Fund (EPF) and Employees’ State Insurance Corporation (ESIC) for Assessment Year 2020-21.

The assessee, Gurdev Singh, had contended that the contributions, though deposited after the statutory due dates under the respective Acts, were made before filing the income tax return under section 139(1), and hence should be allowed as a deduction.

The return of income in question was processed by the Centralised Processing Centre (CPC) under section 143(1) of the Act. The assessee argued that adjustments under section 143(1)(a)(iv) can only be made for expenses specifically flagged in the Auditor’s Report and not accounted for in the return.

In this case, the Auditor’s Report did not recommend any disallowance; it merely mentioned the due dates and actual payment dates of EPF contributions. Based on this observation, the CPC had disallowed the deduction, which prompted the assessee’s appeal.

Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here

The assessee’s counsel relied on the Supreme Court ruling in Checkmate Services P. Ltd. vs. CIT , arguing that the decision pertained to assessments framed under section 143(3), whereas the present case involved a section 143(1) assessment. It was contended that the legal principles laid down in the Supreme Court case should not apply.

On the other hand, the Department of Revenue argued that statutory due dates under EPF and ESIC laws are mandatory for claiming deductions. Any delay in deposit triggers disallowance under section 36(1)(va) read with section 43B, irrespective of return filing dates.

After considering the submissions, the ITAT observed that the Supreme Court in Checkmate Services had unequivocally held that employee contributions deposited beyond the due date are not deductible, and that the ruling does not distinguish between assessments under section 143(1) or 143(3).

The Tribunal rejected the assessee’s contention that filing the return before due dates should permit a deduction, noting that statutory compliance under the respective Acts takes precedence. Consequently, the Tribunal held that the disallowance of Rs.12.91 lakh was justified and devoid of merit.

The bench of Vikas Awasthy (Judicial Member) confirmed that employers must strictly adhere to statutory timelines for EPF and ESIC contributions to claim deductions under the Income Tax Act.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates