CLEANFLO INDIA PRIVATE LIMITED,DELHI vs. CIRCLE-6(1), DELHI
What did the Tribunal hold?
The Tribunal held that the Hon'ble Supreme Court has ruled that employers must deposit employee's contribution towards EPF/ESI on or before the due date to avail deduction. The Supreme Court clarified that such employee contributions are deemed income and are only deductible if deposited within the stipulated due dates.
What were the facts?
The assessee claimed deductions for employee's contribution to PF and ESI. The revenue authorities disallowed these deductions as the contributions were deposited after the due dates. The assessee contended that Explanation 2 to Section 36(1)(va) was not applicable for the assessment year in question.
What were the issues?
Whether employee's contribution to PF/ESI deposited after the due date is allowable as a deduction. Applicability of Explanation 2 to Section 36(1)(va) for the relevant assessment year.
Which sections of the Income-tax Act were involved?
AI-generated summary — verify with the full judgment below
Cases cited in this judgment(1)Show listHide list
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- CIT v. Alom Extrusions Ltd.1,344 citing1 SCC 489 · 2009 · SC · Read judgment
Income Tax Appellate Tribunal, DELHI BENCH ‘H’, NEW DELHI
Before: Sh. C. N. PrasadDr. B. R. R. Kumar
Per Dr. B. R. R. Kumar, Accountant Member:
The present appeal has been filed by the assessee against the order of National Faceless Appeal Centre (NFAC) dated 16.09.2021.
Following grounds have been raised by the assessee:
“1. That on the facts and circumstances of the case, the order dated as 27.08.2020 passed by the Assistant Director of Income Tax, CPC - Bangalore [hereinafter for the sake of brevity referred to as "The Ld. A.O."] under section 154 of the Income-tax Act, 1961 [hereinafter for the sake of brevity referred to as "The Act"] and as upheld by the Ld. Commissioner of Income-tax (Appeals) - NFAC [hereinafter for the sake of brevity referred to as "The CIT(A)"] is bad at law and void ab initio.
2 Cleanflo India Pvt. Ltd. 2. That on the facts and in circumstances of the case, the Ld. CIT(A) erred in upholding the addition to the tune of Rs. 36,99,564/-on account of employee's contribution of PF under section 36(1)(va) of the Act and the same is not sustainable on various legal and factual ground.
3. That on the facts and in circumstances of the case, the Ld. CIT(A) erred in upholding the addition to the tune of Rs. 3,94,843/-on account of employee's contribution of ESI under section 36(1)(va) of the Act and the same is not sustainable on various legal and factual ground.
4. That on the facts and in circumstances of the case, the Ld. CIT(A) erred in Law in holding that explanation 2 to u/s 36(i)(va) is applicable in A.Y. 2019-20 when its provided is applicable w.e.f. A.Y. 2021-22.
5. That on the facts and in circumstances of the case, the Ld. CIT(A) erred in Law in not followed jurisdiction Delhi high Court judgments.”
The matter has attained finality by the order of the Hon’ble Supreme Court wherein it was observed that employers have to deposit the employee's contribution towards EPF/ESI on or before the due date for availing deduction. In the cases before the Hon’ble Apex Court, the employers had belatedly deposited their employees' contribution towards the EPF and ESI, considering the due dates under the relevant provisions of the Act. The Assessing Officer ruled that by virtue of Section 36(1)(va) read with Section 2(24)(x) of the IT Act, such sums received by the appellants constituted "income". It was held that those amounts could not have been allowed as deductions under Section 36(1)(va) of the IT Act when the payment was made beyond the relevant due date under the respective acts. The Income Tax Appellate Tribunal and later the Gujarat High
3 Cleanflo India Pvt. Ltd. Court dismissed the challenge against this order of AO. In appeal, the court noted that the Kerala High Court has also ruled in favour of revenue on this issue whereas the Hon’ble High Courts of Bombay, Himachal Pradesh, Calcutta, Guwahati and Delhi have favoured the interpretation beneficial to the assessee. The Hon’ble Apex Bench effectively reversed the judgment in Commissioner of Income Tax vs. Alom Extrusions Ltd. (1 SCC 489) relied upon by the assessee.
The Hon’ble Apex Court observed that there is a marked distinction between the nature and character of the two amounts viz., the employers’ contribution and employees’ contribution required to be deposited by the employer. The first one is the employer’s liability is to be paid out of its income whereas the second is deemed an income, by definition, since it is the deduction from the employees’ income and held in trust by the employer. The Hon’ble Apex Court held as under:
"In the opinion of this Court, the reasoning in the impugned judgment that the non-obstante clause would not in any manner dilute or override the employer's obligation to deposit the amounts retained by it or deducted by it from the employee's income, unless the condition that it is deposited on or before the due date, is correct and justified. The non-obstante clause has to be understood in the context of the entire provision of Section 43 B which is to ensure timely payment before the returns are filed, of certain liabilities which are to be borne by the assessee in the form of tax, interest payment and other statutory liability. In the case of these liabilities, what constitutes the due date is defined by the statute. Nevertheless, the assessees are given some leeway in that as long as deposits are made beyond the due date, but before the date of filing the return, the deduction is allowed. That, however, cannot apply in the case of amounts which are held in trust, as it is in the case of employees' contributions- which are deducted from their income. They are not part of the 4 Cleanflo India Pvt. Ltd. assessee employer's income, nor are they heads of deduction per se in the form of statutory pay out. They are others' income, monies, only deemed to be income, with the object of ensuring that they are paid within the due date specified in the particular law. They have to be deposited in terms of such welfare enactments. It is upon deposit, in terms of those enactments and on or before the due dates mandated by such concerned law, that the amount which is otherwise retained, and deemed an income, is treated as a deduction. Thus, it is an essential condition for the deduction that such amounts are deposited on or before the due date. If such interpretation were to be adopted, the non-obstante clause under Section 43 B or anything contained in that provision would not absolve the assessee from its liability to deposit the employee's contribution on or before the due date as a condition for deduction."
As the issue of payment of employees contribution towards the PF has been ruled against the assessee by the Hon’ble Supreme Court in the case of Checkmate Services P. Ltd. vs. Commissioner Of Income Tax-I in CA No. 2833/2016 vide order dated 12.10.2022. Hence, the appeal of the assessee on this ground is liable to be dismissed.
In the result, the appeal of the assessee is dismissed. Order Pronounced in the Open Court on 25/11/2022.
More judgments on Section 36(1)(va)
- Vco Consulatatns and Sevices Private… vs ITO, Corporate Ward 3(3), ChennaiITA 2145/CHNY/2025[2019-20]Status: Disposed16 Oct 2026AY 2019-20
- R K Swamy Limited, Chennai vs DCIT Non Corporate Circle 10(1), ChennaiITA 504/CHNY/2026[2018-19]Status: Disposed14 Oct 2026AY 2018-19
- M/S. R.K. Swamy Ltd., Chennai vs DCIT, Ncc-10(1), ChennaiITA 2822/CHNY/2025[2020-21]Status: Disposed14 Oct 2026AY 2020-21
- Rajesh Maru, Mhow vs ITO-5(1), IndoreITA 839/IND/2025[2023-2024]Status: Disposed12 Oct 2026AY 2023-2024
- Rajesh Maru, Mhow vs ITO-5(1), IndoreITA 838/IND/2025[2022-2023]Status: Disposed12 Oct 2026AY 2022-2023
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