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Facts
The assessee company made delayed payments of employee contributions to PF/ESIC. The PCIT initiated revision proceedings under Section 263, holding that the assessment order was erroneous as it allowed deduction for these delayed payments, contrary to Section 36(1)(va) read with Section 2(24)(x) of the Income Tax Act, 1961. The assessee argued that the delay was minimal and due to holidays, invoking Section 10 of the General Clauses Act.
Held
The Tribunal held that the payment of employee contributions to PF/ESIC must be made within the prescribed due dates as per the relevant statutes. Delays, even by one day, particularly when electronic payment systems are available 24/7, are not excused by Section 10 of the General Clauses Act. The decision of the Supreme Court in Checkmate Solutions Pvt. Ltd. was deemed binding.
Key Issues
Whether a delay in remittance of employee contributions to PF/ESIC, even if for one day and occurring on a weekend or holiday, is justifiable under Section 10 of the General Clauses Act, and if such delayed payments are eligible for deduction under Section 36(1)(va) of the Income Tax Act, 1961.
Sections Cited
263, 143(3), 2(24)(x), 36(1)(va), 10
AI-generated summary — verify with the full judgment below
Before: SHRI SANDEEP GOSAIN & SHRI PRABHASH SHANKAR
Date of Hearing 03.06.2025 Date of Pronouncement 13.06.2025 आदेश / O R D E R PER PRABHASH SHANKAR [A.M.] :- The present appeal filed by the assessee emanates from the Revision order passed u/s 263 of the Income-tax Act, 1961 [hereinafter referred to as “Act”] dated 21.03.2025 by the Principal Commissioner of Income-tax, Mumbai – 4 [hereinafter referred to ‘PCIT’] pertaining to the assessment order passed u/s. 143(3) of the Income-tax Act, 1961 [hereinafter referred to as “Act”] dated 21.09.2022 for the Assessment Year [A.Y.] 2020-21. P a g e | 2 A.Y. 2020-21 Amsal Chem Private Limited, Mumbai 2. The grounds of appeal are as under:-
1. Ld. Pr. CIT, Mumbai-4 erred in law and on facts revising assessment order which is neither erroneous nor prejudicial to the interest of revenue.
2. Ld. Pr. CIT, Mumbai-4 erred in law and on facts revising order by simply following Supreme Court judgment in Checkmate Solutions (143 taxman.com 178) ignoring the submissions that provisions of Sec. 10 of General Clauses Act was clearly applicable to the facts of the case as submitted by the appellant.
3. Ld. Pr. CIT, Mumbai-4 erred in law and on facts holding that the assessment was completed without any inquiry or query on the issue of delayed payments of employees contribution to PF/ESIC fund beyond due date of the relevant Act.
4. Ld. Pr. CIT, Mumbai-4 erred in law and on facts not accepting payment made on 15.05.2019 itself substantiated by the appellant submitting copy of PF Challan/ PF payment receipt & bank statement showing remittance from company's bank a/c.
5. Ld. Pr. CIT, Mumbai-4 erred in law and on facts in not dropping the revisionary proceedings on the issue of disallowance of delayed payment when payments are made on the very next day in case due date falls on a Sunday/ national holiday as per the provisions under Sec. 10 of General Clauses Act.
6. Ld. Pr. CIT, Mumbai-4 ought not to have held assessment order erroneous and prejudicial to the interest of revenue when payments made towards contribution of PF/ESIC with one day delay as due date prescribed under the relevant Act fell on a Sunday or a gazette public holiday were held allowable under Sec 10 of General Clauses Act as held by Delhi ITAT in 202 ITD 116.
3. The assessee company filed return of income for AY 2020- 21 declaring total income Rs.5,23,71,930/-. Assessment u/s. 143(3) r.w.s 144B of the Act, was completed assessing total income at Rs.5,23,71,930/-.Brief facts of the case are that on perusal of records, as per Audit Report, it was observed by the ld.PCIT that the assessee received contributions from employees and the same were not paid to the PF/ESIC authorities before the ‘due date’ P a g e | 3 A.Y. 2020-21 Amsal Chem Private Limited, Mumbai under the relevant Acts. The amount so collected to the tune of Rs. 10,29,286/- was liable to be deemed as income u/s. 2(24)(x) r.w.s 36(1) (va) of the Act and needed to be disallowed and added back to the income of the assessee u/s. 2(24)(x) of the Act. He further observed that the assessment order was passed by the AO without making enquiry or verification of the issue, which rendered the assessment order erroneous in so far as it is prejudicial to the interests of the revenue. Accordingly, in response to a show cause notice u/s. 263 of the Act, the assessee filed submission dt. 07/03/2025, relevant parts of which are reproduced below:
“As Your Honor is kind enough to give the opportunity and further in response to your above referenced notice, without prejudice, we hereby raise our objection in writing to your proposed revision proceedings u/s 263 of the Income Tax Act, 1961 as mentioned therein, on following grounds on the subject issue; Wherein it is mentioned there in para 2.1 of your above referenced Notice that: Para 2.1 On perusal of records, it is observed from the Audit Report(3CD) that certain contributions received from employees are not paid before the due date of the relevant Act. The employee's contribution collected by the Employer and not paid before the due dates of relevant Act, be deemed income u/s 2(24)(x) of the Act. The same is allowable as deduction u/s. Sr. Sum received Due date for Actual date No. from employees payment of payment Provident Fund 1. 2,76,481 15.05.2019 16.05.2019 2. 1,76,508 15.09.2019 16.09.2019 3. 5,01,080 15.03.2020 16.03.2020 Total 9,54,069 ESIC 1. 15.05.2019 16.05.2019 P a g e |
4. A.Y. 2020-21 Amsal Chem Private Limited, Mumbai
21,828 15.06.2019 17.06.2019 3. 10,101 5.08.2019 16.08.2019 10,838 15.09.2019 17.09.2019 9,983 15.11.2019 16.11.2019 Total 75,217 Grand 10,29,286 Total With due respect to above decisions, in my opinion, there is no such ambiguity. Proper analysis of Paragraph 38 of EPF. Scheme reveals as follows: Employer’s liability to deduct employee’s contribution arises before paying wages to employees (and not as and when wages are earned by employees), in respect of any period or part of period. Thus, the employees’ contribution comes in the hands of the employer during the wage disbursal month and not during the wage period (which may be a calendar month or any other period and not necessarily a period equal to one month) Employees’ contribution thus deducted is to be deposited together with employees’ contribution within 15 days of the close of month. Thus, if both employees’ and employer’s contributions for Provident Fund is made within 15 days of the close of month in which wages are paid, it will be within due date. So, relevant month to be considered for determining due date is payment month i.e. wages disbursement month and not month or period to which wages relate. Otherwise also, any other interpretation would produce absurd results in following cases:- Where wage-period is not month, it may be weekly or daily and may cover portions of two months. Where due to lock-out or strike or due to natural calamities or financial stringency, wages are paid after return of the situation to normalcy. Increment in wages is effected with retrospective effect. The view that payment month is relevant for considering due date for payment of Provident Fund contribution is also supported by Calcutta Tribunal 'B' Bench's decision dated 28-5-2001 rendered in the case of Kanoi Paper & Industries Ltd,. Calcutta Vs ACIT, Co. Circle 7(2). Calcutta IITA No. 1260(Cal) of 1996), an unreported decision till the date of this write-up, which held in para 6 of its order as follows:- “Clause 38 of the Employees' Provident Fund Scheme, 1952, fixes the time limit for making payment in respect of contribution to the provident fund to be 15 days from the close of the month concerned. However, the issue here is whether the “month” should be considered to be the month to which the wages relates or the month which the actual disbursement of the wages is made, We are of the considered opinion at the expression month” should mean here the month during which the wages/ salary P a g e | 5 A.Y. 2020-21 Amsal Chem Private Limited, Mumbai is actually disbursed irrespective of the month to which the same relates. Thus the scheme of the Govt. in this regard is that once a deduction is made in respect of the employees’ contribution to the provident fund from the salary wages of the employee or the employer also makes his contribution, factually at the time of disbursement of the salary the payment in respect of such contribution should be made forthwith if for some reason or other the payment of salary for a particular month be held up for considerable period of time it cannot be said that the employer would be liable to make payments in respect of the “employer’s” as well as employees contribution in respect of wages for such period (2) This section applies also to all Central Acts and Regulations made on or after the Fourteenth day of January, 1887 and to statutory acts made larder such Central Acts or Regulations, Condoned as per Section 10 of the General Clauses Act, 1897 means that a delay in completing an act or proceeding is excused because the last day of the prescribed period fell on a day when the court or office was closed, allowing the action to be taken on the next working day, as per the provision essentially allows for a "condonation" of the delay due to a closed day. Key Points to justify the condonation of delay; Computation of time: Calculating the time when a deadline falls on a day when a office is closed due to Sunday-A Public Holiday and/or any Gazette Holiday.Here the due dates of two instances ie 15/09/2019 and 15/03/2020 falls on a Sunday, hence the justify. Next working day If the last day of a prescribed period is a closed day, the act or proceeding can be done on the next working day and still be considered done within the stipulated time. We the assessee company has paid and remitted the subject contribution on very next day i.e. on 16 of respective month In support of the above we hereby enclose the following documents for your kind perusal. Encl: 4 Original copy of Application u/s 10 of the General Clauses Act, 1897 before your Honour. Encl: 5Copy of PF Challan Encl. 6Copy of PF Payment Receipt Encl. 7 Copy of bank statement showing deduction/Withdrawal/remittance of amount of contribution from company’s bank account for the month of September 2019 and March 2020 in respect of the same we hereby enclose the copy of our separate Application for Condonation of Delay under section 10 of General Clause Act, 1897 for your kind approval. Your Honor is humbly requested to may please be approve the same so that the P a g e | 6 A.Y. 2020-21 Amsal Chem Private Limited, Mumbai assessee company will not suffer from unwarranted tax burden just because of delayed payment by 1 day only. In view of the above facts and circumstances, it is further most humbly prayed that the delay, in payment for remittance of Employee Contribution to Provident Fund may please be condoned and the revision proceedings may please be decided on merits, in the interest and for the ends of natural justice, equity and fair play.” 3.1 The ld.PCIT noted that there was no inquiry made or any query raised about the issue of delayed payments of Rs. 10,29,286/-, Employees’ contribution to the PF/ESIC fund beyond due date of the relevant Acts. The Hon’ble Apex Court, in the case of Checkmate Solutions Pvt. Ltd. v/s. Commissioner of Income Tax 1 (SC) (143 taxmann.com 178), held that in view of the specific provisions of section 36(1)(va)r.w.s 2(24)(x) of the Act, the Employee’s contribution to PF/ESIC not paid by the due date under relevant Acts, are not eligible for deduction. For employee’s contribution to PF/ESIC, there is specific deeming Section 2(24)(x) and allowability of deduction u/s. 36(1)(va) of the Act. The assessee had failed in fulfilling the condition of Section 36(1) (va) of the Act. The decision of Hon'ble ITAT Calcutta Bench was not applicable after the decision of Hon'ble Supreme Court in the case of Checkmate Solutions Pvt. Ltd., (supra). Accordingly, it was held by him that the assessee was not eligible to claim deduction u/s. 36(1)(va) to the tune of Rs. 10,29,286/-, pertaining to delayed payment of Employees' contribution to PF/ESIC and to this extent, the assessment order passed was erroneous and prejudicial to the interest of revenue. Hence, the P a g e | 7 A.Y. 2020-21 Amsal Chem Private Limited, Mumbai assessment order was partly set aside to the file of the AO to modify the assessment order as per findings in this order.
Before us, the ld.DR has relied on the revision order. Per contra, the ld.AR of the assessee reiterated the same contentions as made before the ld.PCIT. It is further stated the in so far as PF contributions are concerned, the same were made either on the due date or a after due to public/closed holidays as per table below:
Sr. Sum received Due date Actual date Remarks No. from for of payment employees payment Provident Fund 1. 2,76,481 15.05.2019 16.05.2019 Date of payment wrongly mentioned in audit report(payment confirmation dated 15.05.2019 filed as per page-11 of Paper book) 2. 1,76,508 15.09.2019 16.09.2019 Payment on Monday as due date was Sunday 3. 5,01,080 15.03.2020 16.03.2020 -do- Total 9,54,069 ESIC 1. 15.05.2019 16.05.2019 Late 2. 21,828 15.06.2019 17.06.2019 Late 3. 10,101 5.08.2019 16.08.2019 Payment on next day of National holiday 10,838 15.09.2019 17.09.2019 Late 9,983 15.11.2019 16.11.2019 Late Total 75,217 Grand 10,29,286 P a g e | 8 A.Y. 2020-21 Amsal Chem Private Limited, Mumbai Total 4.1 It was further submitted that in terms of General Clauses Act, 1897 the remittance of contribution immediately on next working day i.e. on 16th is a sufficient compliance as same is well within prescribed due date as envisaged by section 36(1)(va) r.w. GCA (supra) and for the reason disallowance is unwarranted. As regards ESI contributions it is admitted that there were delays albeit 2-3 days only. It is further contented that the ld.PCIT was not justified in setting aside the assessment order without taking due cognizance of these facts.
We have carefully considered all relevant facts of the case, rival submissions and the provisions of law as also the decision of hon’ble Supreme Court in the case of Checkmate Solutions Pvt. Ltd., (supra).The subject matter is no-more res-integra r.w. explanation 1 to clause (va) of section 36(1) of the Act. In so far as the issue of grace period or applicability of Clause 10 of GCA (supra) are concerned, we do not find any merit in the contentions of the ld.AR in view of the now prevalent online payment system introduced and very much in vogue even in government organisations now a days. We find that exactly identical issue of delayed Employees’ contribution to PF/ESI came up for consideration before the coordinate Bench of ITAT, Pune in the case of dated 8 August, 2023 in the case of BNY P a g e | 9 A.Y. 2020-21 Amsal Chem Private Limited, Mumbai Mellon International Operations involving plea of applicability of Clause 10 of GCA(supra). The hon’ble Bench in a detailed order decided the issue in favour of the Revenue. Relevant parts of the said order are extracted below for ready reference:
“6. Next comes to xxxxxxxxx prayer for admission of additional ground i.e. ground No.15 raised challenging disallowance made by Ld. CPC u/s 36(1)(va) of the Act for delayed remittance of ESI/PF . contribution. In this context Ld. AR submits that, obligation to remit contribution to ESI/PF fund by prescribed due date of 15/08/2016 was delayed by a day due to public holiday, on which the office of ESI/PF fund was closed and not attributable to assessee's failure. Pressing into service clause 10 of General clauses Act, 1897 ['GCA' hereinafter] the Ld. AR contended that, remittance of contribution immediately on next working day i.e. on 16/08/2016 is a sufficient compliance as same is well within prescribed due date as envisaged by section 36(1)(va) r.w. GCA (supra), for the reason disallowance is unwarranted. To drive home aforestated contention Ld. AR placed strong reliance on Co- ordinate Benches decision rendered in 'Integrity Verification Services Pvt. Ltd. Vs ITO' (ITA No.1843/Mum/2021) and 'Whirlpool of India Ltd. Vs JCIT' [2008] 114 TTJ 211 (Del.). 7. ………………… 8. We note that, the additional ground raised claiming entitlement for deduction in terms of section 36(1)(va) of the Act is a pure legal ground triggering no fresh enquiry and investigation into the facts, as the date of remission by which the appellant discharged its liability was conspicuously brought on record at 20(b) of Form No. 3CD of tax audit report (placed at page 193 of p/b) and same was there before both the tax authorities below, therefore placing reliance on Hon'ble Apex Court decisions rendered in 'Sanghvi Reconditioners Pvt. Ltd. reported in AIR 2010 SC 1089', 'Greater Mohali Area Development Authority reported in AIR 2010 SC 3817', 'The National Textile Corporation Ltd. reported in 12 SCC 695' and 'NTPC Vs CIT' (supra).
9. Having admitted the additional ground, next remains a question as to whether claim for deduction u/s 36(1)(va) of Act r.w. 'Checkmate Services Pvt Ltd.' (Supra) is still available to the assessee when contribution is not remitted to ESI/PF fund within the due date prescribed by the respective Acts.
10. We note that, appellant has set-up a ground for allowance on two counts (i) contribution is remitted within a grace period of five days allowed (ii) due-date of 15th August was a public holiday therefore remittance on very next working day is shielded by clause 10 of GCA.
11. Albeit the subject matter is no-more res-integra in the light of Hon'ble Supreme Court judgement in 'Checkmate Services Pvt. Ltd.' (supra) r.w. explanation 1 to clause (va) of section 36(1) of the Act, however we are mindful to vouch the contention of the appellant in given facts and circumstance of the case and in doing so we note that; 11.1 Statutorily the assessee was required to remit the contributions and administrative charges within fifteen days of close of every month as per the provisions of EPF & PF Act 1952 under three Schemes Viz' Employees' Provident Funds Scheme [EPFS], 1952, P a g e | 10 A.Y. 2020-21 Amsal Chem Private Limited, Mumbai Employees' Pension Scheme [EPS], 1995 and Employees' Deposit Linked Insurance Scheme [EDLIS], 1976 ['respective funds' hereinafter]. 11.2 A grace period of 5 days was allowed in addition to aforestated statutory time limit and any BNY Mellon International Operations (India) Pvt. Ltd. remittance within this grace period was taken as sufficient compliance of law. This grace period of 5 days was allowed in view of then practice of manual processing of calculation of wages and dues of the employees at the end of Employers. 11.3 We note that, Employees Provident Fund Organisation of India, Ministry of Labour & Employment, Government of India vide its circular No. 608/2016 dt. 08/01/2016 withdrawn aforestated grace period of five days w.e.f. February, 2016, resultantly contribution due w.e.f. January, 2016 were subjected to remittance to respective funds without any grace period i.e. within fifteen days of close of every month (supra). 11.4 In the present case, admittedly the contribution is pertaining to period posterior to December, 2015 (remittance was due by 15th August, 2016) i.e. period/obligation falling after the withdrawal of grace period; therefore claim of the assessee of having within the due date because it was remitted within grace period fails to make a room for allowance, thus stands rejected. 11.5 Now coming to clause 10 of GCA and the decision of Co-ordinate Bench (supra) relied by the appellant. We first note that; the decision in 'Integrity Verification Services Pvt. Ltd. v. ITO' was rendered much earlier to 'Checkmate Service Pvt Ltd.' (supra) hence the decision relied falls outside the context, thereof no help to the assessee. Insofar as 'Whirlpool of India Ltd. v. JCIT' is concerned, we note that the said decision was rendered by the Co-ordinate bench in context of use of manual/physical mode of remittance by cheque/draft etc. where remittee PF/ESI office was closed owing to public holiday. We note that aforestated decision and clause 10 of GCA are based upon principle of 'lex non cogit ad impossibilia' and without any iota of doubt they still hold good even today in a similar circumstances, but not in the present facts & circumstances. 11.6 In the present case, the recipient remittee EPF office & respective fund for a limited purpose was represented by designated internet/online bank account, to which the appellant was obligated to remit contribution electronically by 15th August, 2016. This online/internet banking facility of remittee / respective fund was enabled for 24x7 and 365/366 days a year to receive all electronic remittances. Therefore, remittee EPF office/ respective fund cannot said to be closed within the meaning of clause 10 of GCA, and hence renders powerless to expunge present failure of the appellant. Ergo additional ground stands dismissed.”
Respectfully following the above order, we are of the considered opinion that all the PF and ESI Employees’ contributions as per the table reproduced in para 4.1 above, excepting PF payment of Rs 2,76,481/-paid on 15.05.2019, are delayed as per the relevant statutes and therefore, the ld.PCIT has right partly set aside the assessment order which is erroneous and prejudicial to the interest of the Revenue.
P a g e | 11 A.Y. 2020-21 Amsal Chem Private Limited, Mumbai We do not find any infirmity in the impugned order which is accordingly, partly upheld.
In the result, the appeal is partly allowed.
Order pronounced in the open court on 13.06.2025. SANDEEP GOSAIN PRABHASH SHANKAR (न्याययक सदस्य /JUDICIAL MEMBER) (लेखाकार सदस्य/ACCOUNTANT MEMBER)