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Facts
The assessee's representative did not appear for the hearing, leading to an ex-parte proceeding. The appeal challenges the CIT(A)'s order sustaining disallowances made by the AO concerning delayed deposit of employee PF/ESIC contributions and disallowance of current year's loss.
Held
The tribunal held that delayed deposit of employee PF/ESIC contributions is not allowable under Section 36(1)(va) in light of the Supreme Court's decision in Checkmate Services Pvt. Ltd. The tribunal also found merit in the assessee's contention regarding disallowance of current year's loss based on Section 170(1) and directed the AO to re-verify.
Key Issues
Whether disallowance of delayed employee PF/ESIC contributions is justified under Section 36(1)(va) and if the disallowance of current year's loss under Section 170(1) was correctly applied.
Sections Cited
250, 36(1)(va), 143(3), 139(1), 43B, 2(24)(x), 170(1), 79, 115JB
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “F” BENCH, MUMBAI
Before: SHRI SANDEEP GOSAIN & SHRI OM PRAKASH KANT
Date of Hearing 10.11.2025 Date of Pronouncement 12.11.2025 ORDER Per: SHRI. SANDEEP GOSAIN, J.M.:
The present appeals have been filed by the revenue challenging the impugned order dt. 07.07.2025 passed under section 250 of the Income Tax Act, 1961 (‘the Act’), by the National Faceless Appeal Centre (NFAC) / CIT(A) for the assessment year 2013-14.
None appeared on behalf of the assessee when the 2. case was called repeatedly. After going through the case file, we noticed that even on the last date of hearings assessee had sought adjournment, thus, on the said request of the assessee matter was fixed for arguments for today i.e 10.11.2025 but still neither the assessee nor his representative appeared when the case was called repeatedly. Whereas on the contrary Ld. DR present in the court is ready with the arguments. Therefore we have decided to proceed with the hearing of the present case ex- parte.
Ground No. 1 raised by the assessee relates to challenging the order of Ld. CIT(A) in sustaining the disallowance made u/s 36(1)(va) of the Act.
We have heard the Ld. DR and perused the material placed on record and also the orders passed by the revenue authorities. Ld. CIT(A) has dealt with this ground in para No. 6.1(i) of its order and the same is reproduced herein below:
6.1 I have considered the AO's order and the submissions made by the appellant. In this regard, it is reiterated that the present appeal is filed by the appellant against the assessment order passed under section 143(3) of the Income Tax Act, 1961, for the Assessment Year 2013-14. The appellant filed its return of income on 28.09.2013, declaring a loss of Rs. 1,43,25,343/-. The case was selected for scrutinyunder CASS, and statutory notices were issued. In response, the appellant submitted details and supporting documents through the e-filing portal.
After examining the submissions, the Assessing Officer passed the order under section 143(3), assessing loss at Rs. 73,30,037/- by making additions under various heads, including (i) Rs. 12,18,673/- under section 36(1)(va) for delay in employees' PF/ESIC deposit; (ii) Rs.57,76,633/- on account of disallowance of current year loss; and (iii) computing book profit under section 115JB at Rs. 3,15,57,598/- after adding back Rs. 4,52,00,000/- as revaluation reserve. Aggrieved, the appellant has raised four grounds of appeal. The same are discussed here-in- below:
(i) The first ground of appeal pertains to the disallowance of Rs. 12,18,673/- under section 36(1) (va) of the Act being delayed deposit of employees' contribution towards Provident Fund (PF) and Employees State Insurance Corporation (ESIC). The appellant contended that the said contributions, though not deposited within the due dates prescribed under the respective welfare statutes (i.e., the EPF Act and the ESIC Act), were nonetheless deposited before the due date for filing return under section 139(1), and hence allowable under section 43B. In support, the appellant relied on earlier judgments including CIT v. Alom Extrusions Ltd. and Hindustan Organics Chemicals Ltd. (Bom HC).
This submission, however, is no longer sustainable in law in view of the authoritative pronouncement of the Hon'ble Supreme Court in Checkmate Services Pvt. Ltd. v. CIT [(2022) 448 ITR 518 (SC)]. In that case, the Supreme Court dealt directly with the disallowance of employees' contributions to welfare funds under section 36(1)(va) and held that the benefit of section 43B is available only for employer's contributions, and not for employees' contributions, which are governed separately by section 36(1) (va). The Court clarified that while employer's contributions are covered by section 43B and may be allowed if paid before the due date of filing return under section 139(1), employees' contributions are subject to a stricter timeline, i.e., they must be deposited within the due dates prescribed under the relevant labour law (EPF/ESIC Acts), failing which the amount shall be deemed income under section 2(24)(x) and disallowed.
The Hon'ble Supreme Court further held that the intention of the legislature was to treat employer's and employee's contributions differently, as is evident from the separate treatment in the Act. While section 43B begins with a non obstante clause and allows employer's contributions if paid by the return-filing due date, section 36(1)(va) does not contain any such relaxation for employee contributions.
The Court reasoned that since the amount collected as employees' share belongs to the employees and the employer merely acts as a trustee, failure to deposit it within the time prescribed under the relevant Acts attracts disallowance.
In the present case, the Assessing Officer has clearly tabulated the instances where the employees' share of PF/ESIC was deposited beyond the statutory due dates under the EPF Act and ESIC Act. The appellant has not disputed these delays. Hence, the disallowance made under section 36(1)(va) is legally correct, fully in line with the Supreme Court's judgment in Checkmate Services Pvt. Ltd. (supra), and must be upheld. The appellant's reliance on older High Court rulings and Alom Extrusions Ltd. is misplaced because those cases were either on employer's contribution or predate the above binding decision of the Hon'ble Supreme Court. Accordingly, this ground is dismissed.
After having gone through the detailed order passed by the Ld. CIT(A), we find that the disallowance was made by the AO on account of delayed deposit of employees contribution towards PF and ESIC, thus Ld. CIT(A) while relying upon the decision of Hon’ble Supreme Court in the case of Checkmate Services P. Ltd. & Ors. v. Commissioner of Income Tax-I & Ors., reported as (2022) 448 ITR 518 (SC) or 2022 INSC 1069has rightly upheld the order of AO. We find no reasons to interfere into to the lawful findings so recorded by the Ld. CIT(A) thus this ground raised by the assessee stands dismissed.
The other grounds raised by the assessee relates to challenging the order of Ld. CIT(A) in sustaining the disallowance relating to current year’s loss made on proportionate basis by invoking the provisions of Sec. 170(1) of the Act. In this regard we have heard Ld. DR and perused the orders passed by revenue authorities. Ld. CIT(A) has dealt with this ground in para No. 6.1(iii) of its order, the operative portion of the said finding is reproduced herein below: iii) The third ground concerns the disallowance of Rs. 57,76,633/- relating to the current year's loss, made on a proportionate basis by invoking section 170(1) of the Act. The appellant contended that there was no "succession" of business and that section 170(1) was misapplied, since only a change in shareholding occurred, not a transfer of business. Further, it was argued that section 79 applies only to carry- forward of prior year losses and not to the loss incurred in the year of shareholding change. These submissions are found to have merit. Section 170(1) deals with cases of business succession, which is clearly not applicable in a case of mere capital restructuring. However, since the AO's calculation and rationale for disallowance arebased on shareholding data and invocation of both sections 170 and 79, it would be fair and proper to direct the AO to re-verify the basis of disallowance and allow the business loss for the year as per law. Hence, this ground is allowed for statistical purposes with a direction to the AO to verify the facts and determine the eligibility of loss in accordance with the applicable provisions of the Act.
After having gone through the orders passed by the revenue authorities, we find that Ld. CIT(A) after considering the entire facts had directed the AO to verify the basis of disallowance and allow the business loss for the year as per law. We find no reasons to interfere into or
In the result, the appeal filed by the assessee stands dismissed.