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Facts
Yes Bank Limited (assessee) and the Income Tax Department (revenue) filed appeals against an order concerning AY 2020-21. The dispute revolves around the disallowance of employee contributions to PF/ESI paid after the statutory due date, amounting to Rs. 9,75,96,266, and a disallowance of Rs. 30 crores for gratuity fund contribution.
Held
The tribunal held that the disallowance of employee contributions to PF/ESI under Section 36(1)(va) is upheld, following the Supreme Court's decision in Checkmate Services, regardless of the RBI moratorium. However, the disallowance of the gratuity fund contribution under Section 43B was deleted as it was paid before the due date for filing the return of income.
Key Issues
Whether employee PF/ESI contributions paid after the statutory due date are deductible under Section 36(1)(va) and if a moratorium justifies delayed payment; and whether gratuity fund contributions paid before the return filing due date are deductible under Section 43B.
Sections Cited
143(1), 250, 36(1)(va), 234C, 43B, 139(1), 234A
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Income Tax Appellate Tribunal, MUMBAI BENCH “G”, MUMBAI
Before: SHRINARENDRA KUMAR BILLAIYA & SHRI ANIKESH BANERJEE
The instant appeals of the assessee and revenue are filed against the order of the Learned Commissioner of Income-tax (Appeals) / Addl JCIT(A), Panchkula *in short, ‘Ld.CIT(A)’]passed under section 250 of the Income-tax Act, 1961 (in short, ‘the Act’), for A.Y. 2020-21, date of order 16/12/2024. The impugned order was emanated from the order of the CPC, Bengaluru (in short, the “Ld. AO”) passed under section 143(1) of the Act, date of order 26/12/2021.
Both the assessee and revenue has taken the following grounds:-
(Assessee’s Appeal) “GROUND NO. I: DISALLOWANCE U/S 36(1)(va) OF THE ACT AMOUNTING TO RS. 9,44,99,290/-:
On the facts and circumstances of the case and in law, the Hon’ble JCIT(A) erred in confirming the disallowance u/s 36(1)(va) amounting to Rs. 9,44,99,290/- (out of Rs. 9,75,96,266/-) made by the Ld. Centralized Processing Centre (“CPC”) in the intimation passed u/s 143(1).
2. The Hon’ble JCIT(A) failed to appreciate and ought to have held that employees’ contribution to provident fund, paid after the statutory due date owing to the moratorium imposed by the Reserve Bank of India in accordance with the Banking Regulation Act, 1949, could not be disallowed.
3. The Appellant prays that the disallowance u/s 36(1)(va) of the Act amounting to Rs. 9,44,99,290/- be deleted. GROUND NO. GROUND II. LEVY OF INTEREST U/S 234C OF THE ACT: 1. On the facts and circumstances of the case and in law, the Hon’ble JCIT(A) erred in confirming the additional levy of interest u/s 234C of the Act amounting Rs. 17,37,64,891/- as consequential in nature.
3 ITA 1093/Mum/2025 ITA 992/Mum/2025 Yes Bank Ltd
2. The Hon’ble JCIT(A) failed to appreciate and ought to have held that interest u/s 234C is chargeable on returned income.
The Appellant prays that the interest u/s 234C of the Act be computed at Rs. 7,38,54,250/ which was declared by the Appellant in the revised return of income.”
(Revenue’s Appeal) “1. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is justified in deleting the disallowance made under section 43B of the Act on account of contribution to gratuity fund of Rs. 30,00, 00,000/-?"
2 "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is justified in deleting the disallowance made by the A0 under section 43B of the Act on account of contribution to gratuity fund of Rs. 30,00,00,000/- without considering the facts that assessee has fled original ROl on 31.10.2020 u/s. 139(1) of the Act, whereas the payment of gratuity fund was made on 11.02.2021, which is in violation of provision of section 43B of the Act?
3 The Appellant craves leave to add, amend, alter and / or delete any of the grounds of appeal as above.”
3. The brief facts of the case are that the assessee filed its return of income within the due date prescribed under Section 139(1) of the Act. The return was processed under Section 143(1) of the Act by the CPC, Bengaluru. During the processing, the CPC disallowed an amount of Rs.9,75,96,266/- claimed under Section 36(1)(va) of the Act, representing employees’ contributions to EPF and ESI, which had been deposited beyond the due dates prescribed under the respective statutes. Additionally, a disallowance of Rs.30 crores was made under Section 43B of the Act, pertaining to the contribution to an approved gratuity
4 ITA 1093/Mum/2025 ITA 992/Mum/2025 Yes Bank Ltd fund. This amount was paid after the filing of the tax audit report but before the due date for filing the return. The Ld. AO duly disallowed this amount. The Ld. AO also levied interest of Rs.6,21,484/- under Section 234A of the Act and Rs.17,37,64,891/- under Section 234C of the Act for deferred payment of advance tax. Aggrieved by the order, the assessee preferred an appeal before the Ld. CIT(A). After considering the assessee’s submissions, the Ld. CIT(A) deleted the addition of Rs.30crore made under Section 43B but upheld the disallowance of Rs.9,75,96,266/- under Section 36(1)(va), as well as the interest levied under Section 234C. Being dissatisfied with the order, both the assessee and the revenue have filed appeals before us. ITA 1093/Mum/2025 (Assessee’s Appeal) 4. The Ld. AR submitted that the assessee had filed a Paper Book comprising pages 1 to 196, which is placed on record. It was first contended that the return of income was processed under Section 143(1) of the Act on 26.12.2021, at which point the prevailing legal position—based on the judgment of the Hon’ble Bombay High Court—was in favour of the assessee, allowing deduction of employees’ contributions to PF and ESI even if deposited after the statutory due dates but before the due date for filing the return of income under Section 139(1).The Ld. AR acknowledged the subsequent judgment of the Hon’ble Supreme Court in Checkmate Services Pvt. Ltd. vs CIT-1, (2022) 143 taxmann.com 178 (SC), dated 12.10.2022, which conclusively held that employee contributions deposited beyond the statutory due date are not eligible for deduction under Section 36(1)(va), even if paid before the return-filing due date.
5 ITA 1093/Mum/2025 ITA 992/Mum/2025 Yes Bank Ltd However, it was contended that the said ruling was not applicable at the time the disallowance was made under Section 143(1), and that the CPC, Bengaluru, was bound by the binding decision of the Hon’ble Jurisdictional High Court, which supported the assessee’s claim at that time. Hence, the disallowance was argued to be bad in law.In support of this position, reliance was placed on the decision of the Hon’ble Supreme Court in CIT Central, Ludhiana v. Max India Ltd. (2007) 295 ITR 282 (SC), wherein it was held that where two views were possible at the time of the original assessment, a subsequent retrospective amendment would not justify invoking revisionary powers under Section 263. Further reliance was placed on Rallis India Ltd. v. ACIT, (2010) 323 ITR 54 (Bom), where the Hon’ble Bombay High Court held that reassessment was unsustainable if based merely on a change of opinion in the absence of tangible material.
On merits, the Ld. AR submitted that the assessee, Yes Bank Ltd., was placed under a moratorium by the Reserve Bank of India from 05.03.2020 to 18.03.2020, under the directions of the Government of India, Ministry of Finance. Consequently, the bank was legally restrained from making any payments, including those towards employee welfare funds. Immediately upon lifting of the moratorium on 18.03.2020, the assessee remitted the entire amount of employee contributions to EPF and ESI on 19.03.2020. The tax audit report, annexed at pages 131 to 156 of the assessee’s Paper Book, records this payment. The delay, therefore, was only for four days and was solely attributable to the moratorium imposed by the RBI. The tax auditor, after considering the prevailing legal position and the jurisdictional High Court's decision, allowed the deduction under Section 36(1)(va). Notwithstanding this, the Ld. CIT(A) upheld the disallowance made
6 ITA 1093/Mum/2025 ITA 992/Mum/2025 Yes Bank Ltd under Section 143(1), relying on the ruling in Checkmate Services (supra). The Ld. CIT(A)’s relevant findings at paragraphs 5.6 and 5.7 confirm that the addition was sustained purely in view of the subsequent Apex Court judgment, though the assessee had originally claimed the deduction in good faith and later offered the amount to tax to avoid litigation. The observation of the Ld.CIT(A) at paragraphs 5.6 to 5.7 is duly reproduced below: - “5.6The appellant in its reply has submitted that the Appellant’s claim for deduction u/s 36(1)(va) was based on the legal position prevailing at the time of filing revised Return of Income. Hence, the Appellant was under a bona fide belief that the said deduction is supported by the binding decision of the jurisdictional High Court. However, purely to comply with the law settled by the Hon’ble Supreme Court, without admission of guilt, the Appellant offers Rs. 9,75,96,266/- being deduction claimed, to tax. The Appellant submits that the claim was not made with a malafide intention, and it is being offered for tax purely to avoid litigation and to buy peace.
5.7Therefore, in view of the appellant’s reply as mentioned above and respectfully following the view endorsed by the Hon’ble Supreme Court in the case of Checkmate Services P. Ltd. supra in which the Hon’ble Court has dealt with various rulings and the relevant provisions of law since their introduction in the Statute, finally concluded the matter in favour of Revenue, the disallowance of Rs. 9,75,96,266/- made under section 36(1(va) of the Act on account of delayed payment of Employees Contribution to EPF/ESI u/s 143(1) is confirmed.Therefore, this ground of appeal taken by the appellant is dismissed” The Ld. AR also placed on record a chronological statement substantiating the factual constraints due to the moratorium, as under: Sr No. Particulars Date
1. Moratorium imposed Mar 05, 2020 2. Reconstruction scheme introduced Mar 13,2020 3. Due date for payment of PF (Feb 2020) Mar 15,2020 4. Moratorium lifted Mar 18,2020 5. Payment of PF Mar 19,2020 6. Filing of Tax audit report Dec 31,2020
7 ITA 1093/Mum/2025 ITA 992/Mum/2025 Yes Bank Ltd 7 Payment of gratuity Feb 11, 2021 8 Filing of Return of Income Feb 12,2021 Extended due date for filing Return of Income in view of Notification Feb 15,2021 No.93/2020 [F.No.370142/35/2020-TPL]/S.O. 4805(E) dated December 31, 2020
The Ld. DR, on the other hand, strongly supported the orders of the revenue authorities. Written submissions dated 07.04.2025 were filed and placed on record. The Ld. DR argued that the law, as interpreted by the Hon’ble Supreme Court in Checkmate Services (supra), is now settled beyond controversy. It was emphasized that Section 36(1)(va) is distinct from Section 43B and applies a strict requirement that employee contributions must be deposited on or before the due date specified under the respective welfare statutes. The Ld. DR further contended that the moratorium imposed by the RBI, while unfortunate, does not alter the statutory mandate. In the absence of any extension granted by the relevant EPF/ESI authorities for remitting the dues, the contributions deposited on 19.03.2020 remain belated in law. Citing various rulings and legislative clarifications, it was submitted that equitable considerations or financial hardship cannot override a clear statutory prohibition. The disallowance, being mandatory, was correctly upheld by the Ld. CIT(A). The relevant part of DR’s submission is reproduced as below:- “Ground-1: Disallowance under Section 36(1)(va)- Employee’s PF/ESI Contributions Ground in Appeal (Assessee): The assessee contends that the CIT(A) erred in confirming the disallowance of 29.44 crore in respect of employee contributions to provident fund, which were paid after the due date under the respective Acts. It is argued that these contributions were delayed only because of the moratorium imposed by the Reserve Bank of India on Yes Bank in March 2020 (under the Banking Regulation Act, 1949), and that given this extenuating circumstance, the payment (made before the return filing date) should not be disallowed. The assessee relies on earlier jurisprudence which had allowed such deductions if remitted by the 8 ITA 1093/Mum/2025 ITA 992/Mum/2025 Yes Bank Ltd due date of filing the return (e.g. CTT v. Ghatge Patil Transports Ltd. (368 ITR 749) (Bom) and other High Court rulings), and maintains that the disallowance is unwarranted on facts and in law. Revenue's Rebuttal: At the outset, the Revenue appreciates the difficulties faced by the assessee during the RBI-imposed moratorium in March 2020. Nevertheless, the disallowance under Section 36(1)(va) of the Income Tax Act is mandated by the statute and has been unequivocally upheld by the highest court. The legal position is as follows:
Statutory Scheme: Section 2(24)(x) of the Act includes within the definition of an employer's "income" any sum received from employees as their contribution to PF/ESI or other welfare funds. Section 36(1)(va) then allows a deduction for such sum, if and only if it is deposited in the designated fund "on or before the due date" prescribed under the relevant provident fund or ESI law. By virtue of the pre-existing Explanation to Section 36(1)(va), the "due date" means the date by which the employer is required to credit the employees' contribution to the employees' account under the relevant fund statute. In the present case, the due date for PF contributions was the 15th of the following month (for ESI, the 15th of next month) as per the respective Acts. Any employee-share contribution paid after that date does not qualify for deduction. Unlike employer contributions (which are governed by Section 43B), the statute does not allow employee contributions to be deducted even if paid before the income-tax return filing due date this distinction was deliberate and is rooted in the fiduciary nature of such contributions.
No Equitable Carve-Out: The Act does not provide any exception to this rule basedon reasonable cause or financial hardship. Even during the pandemic or other crises, unless the law or the concerned welfare authority extended the statutory due date for deposit of the contributions, the liability to deposit by the original due date remained. In this case, the assessee has not shown that the provident fund authorities granted any extension of the due date for remitting the February/March 2020 employee contributions. The moratorium imposed by RBI (which restricted the bank's operations from March 5-18, 2020) was undoubtedly an extraordinary situation; however, in the absence of a specific relaxation under the EPF/ESI laws, the contributions that missed the prescribed due dates (e.g. contributions for February 2020 due by March 15, 2020) legally remain "belated". The Income-tax Act, as it currently stands, does not empower either the Assessing Officer or this Tribunal to ignore the missed deadline on sympathetic grounds.
9 ITA 1093/Mum/2025 ITA 992/Mum/2025 Yes Bank Ltd Apex Court's Settled Decision: The Hon'ble Supreme Court in Checkmate Services(P) Ltd v. CTT [[2022] 143 taxmann.com 178 (SC)] has authoritatively settled this issue in the Revenue's favour. In that case, the Supreme Court considered the divergent High Court rulings (including those cited by the assessee such as Ghatge Patil, Aimil Ltd., Sabari Enterprises, etc.) and upheld the Department's view that employee contributions to PF/ESI not deposited within the due date as per the respective Acts are not allowable as a deduction, even if deposited before the income-tax return filing date. The Hon'ble Court emphasized that the character of employee's contribution (which is trust money deducted from employees' wages) is fundamentally different from the employer's own contribution; Parliament intended stricter compliance for the former. The Supreme Court noted that the Finance Act 2021 amendments (inserting Explanation 2 to Section 36(1)(va) and Explanation 5 to Section 43B) were clarificatory in nature - they shall not apply and shall be deemed never to have been applied for determining due dates of such contributions reinforcing that even prior to AY 2021-22 the law always required timely deposit toclaim the deduction. In sum, after Checkmate Services(SC), there remains no room for the earlier liberal view; any payment beyond the statutory due date results in forfeiture of the deduction under Section 36(1)(va).
Application to Facts: It is an admitted fact that a substantial portion of the employees PF/ESI contributions collected by the assessee in FY 2019-20 were remitted after the respective due dates (despite being remitted before the ROI due date). The quantum in dispute (29.44 crore) pertains to those remittances made beyond the grace period allowed by the welfare laws. Even if the delay was only a matter of days and occurred under stress of the bank's temporary moratorium, the law provides no latitude to allow the deduction. The CIT(A) has rightly upheld the disallowance in principle, explicitly relying on the Supreme Court's decision. The assessee itself, in the appellate proceedings, acknowledged the Supreme Court ruling and "offered" the amount for taxation, albeit "to buy peace". Thus, both on facts and in law, the disallowance is warranted.
Moratorium ArgumentNo Legal Basis: The assessee's plea that the RBI moratorium should shield it from disallowance, while understandable from an equitable standpoint, cannot override the statute. The Income Tax Act does not contain a provision to excuse or defer the Section 36(1)(va) condition due to a moratorium or any force majeure. Unless the contributions were deposited within the extended due dates granted by the controlling authority (for example, if the EPFO had extended March 2020 deadlines due to the pandemic or the specific bank moratorium), the contributions remain "late" in the 10 ITA 1093/Mum/2025 ITA 992/Mum/2025 Yes Bank Ltd eyes of Section 36(1)(va). The assessee has not pointed to any such notification or extension covering its case. Therefore, the moratorium, however compelling the circumstances, cannot be accepted as a ground to allow the deduction. This position finds support in the observation of the Hon'ble Madras High Court in Unifac Management Services (India) (P) Ltd v. DCIT (2019) 260 Taxman 60 (Mad), where the Court held that Sections 43B and 36(1)(va) operate independently; one cannot import the leniency of Section 43B into Section 36(1)(va) for belated employee contributions, and the employer is expected to deposit such contributions on time to avail deduction. In other words, there is no mechanism to relax the due date based on reasonable cause in this provision.
Conclusion on Ground 1: The CIT(A)'s confirmation of the disallowance of ₹9.44 crore under Section 36(1)(va) is firmly grounded in law and the binding Supreme Court precedent. The Revenue respectfully prays that the Hon'ble ITAT dismiss the assessee's appeal on this ground, thereby sustaining the disallowance in full. The outcome may be harsh in light of the bank's temporary inability to operate, but it is a direct consequence of a clear statutory mandate aimed at protecting employee welfare funds. Ensuring strict compliance also upholds the broader principle underscored by the Supreme Court that such contributions, being in the nature of trust money, must be deposited timely or not deducted at all.”
Upon careful consideration of the facts, submissions of both parties, and applicable legal principles, the following conclusions emerge. The Hon’ble Supreme Court in Checkmate Services Pvt. Ltd. (supra) has conclusively held that employee contributions to PF/ESI deposited beyond the statutory due date, as prescribed under the relevant Acts, are not allowable as deduction under Section 36(1)(va), even if such payment is made before the due date for filing the return under Section 139(1).Applicability of ruling of Checkmate Services Pvt Ltd (supra) the assessee rightly points out that the ruling was delivered after the return was processed, the subsequent authoritative interpretation by the Hon’ble Apex Court has retrospective effect, being a declaration of what the law always was.
11 ITA 1093/Mum/2025 ITA 992/Mum/2025 Yes Bank Ltd Therefore, the disallowance under Section 143(1) cannot be held to be bad in law merely because a contrary High Court view existed at the time of processing. Related to impact of moratorium, we find that the moratorium imposed on the assessee bank, though factually established and genuinely constraining, cannot override the statutory requirement under Section 36(1)(va). No exemption or extension was granted by the EPF/ESI authorities; hence, the delay, though minimal and caused by compelling circumstances, results in forfeiture of the deduction. In light of the binding precedent of the Hon’ble Supreme Court, the disallowance of Rs.9,75,96,266/- under Section 36(1)(va) of the Act is legally sustainable. The plea regarding the RBI moratorium, though factually accurate, cannot prevail over the express language of the statute. Accordingly, the ground no-1 raised by the assessee challenging the disallowance under Section 36(1)(va) is dismissed. The order of the Ld. CIT(A) confirming the disallowance is upheld.
Related to ground No.2 for levy of interest under section 234C of the Act is consequential in nature so there is no requirement for adjudication. ITA 992/Mum/2025 (Revenue’s Appeal) 9. In this appeal, the Ld.DR argued and filed written submission. He submitted that the assessee paid provident fund of Rs.30crore, after the tax audit report, but it is accepted that the payment was made before the due date for filing of return under section 139(1) of the Act. The Ld.AR in argument fully relied on the impugned appeal order and the relevant paragraph 5.8 of the impugned appeal order is reproduced below:" “5.8 On Ground of Appeal
No. 2:- This ground of appeal relates to disallowance u/s 43B of the Act amounting to Rs. 30,00,00,000/-. The appellant has filed the 12. ITA 1093/Mum/2025 ITA 992/Mum/2025 Yes Bank Ltd Tax Audit Report in Form 3CD as required under the Act. Subsequent to filing Form 3CD but before the due date of furnishing the Return of Income (ROI) under Section 139(1) of the Act, the appellant paid Rs. 30,00,00,000/- as a contribution to the gratuity fund. The AO disallowed the deduction of this amount under section 43B of the Act, citing its payment after filing Form 3CD.The appellant submits that the amount was paid before the due date of furnishing ROI u/s 139(1), and therefore, it qualifies for deduction under Section 43B. It is argued that section 43B allows deductions for specified expenses, including contributions to gratuity funds, if paid within the due date of filing ROI. Section 43B of the Act mandates that certain expenditures, including contributions to gratuity funds, are allowable only on actual payment. The second proviso to Section 43B clarifies that such payments will be allowable as deductions if made before the due date for filing ROI u/s 139(1). In the present case, the appellant has established that the amount of Rs. 30,00,00,000/- was paid before the due date of filing ROI under Section 139(1). The timing of payment aligns with the requirements set out in the statute as the payment has been made on 11.02.2021 as per evidence of payment filed by the appellant which is before the extended due date of filing of ROI which was 15.02.2021 in view of Notification No. 93/2020 [F. No. 370142/35/2020- TPL]/S.O.4805(E) dated December 31, 2020.In the light of the above facts and legal principles, the payment of Rs.30,00,00,000/- towards the gratuity fund, made before the due date of filing ROI under section 139(1), qualifies for deduction under Section 43B of the Act and the disallowance made is deleted. Therefore, this ground of appeal is allowed.”
We have heard the rival submissions and carefully perused the material available on record. It is observed that the statutory provision under Section 43B of the Act permits the deduction of contributions made to an approved Gratuity 13 ITA 1093/Mum/2025 ITA 992/Mum/2025 Yes Bank Ltd Fund, provided the payment is made on or before the due date for filing the return of income under Section 139(1) of the Act. In the present case, the assessee made the payment of Rs.30,00,00,000/- towards the Gratuity Fund before the extended due date for filing the return of income, i.e., 15.02.2021, in accordance with Notification No. 93/2020 [F. No. 370142/35/2020-TPL]/S.O. 4805(E) dated 31.12.2020. In light of the above factual matrix and settled legal position, the payment made by the assessee qualifies for deduction under Section 43B of the Act. Accordingly, the disallowance made by the Ld. AO is not justified. We find no infirmity in the order passed by the Ld. CIT(A) in this regard. Consequently, the view taken by the Ld. CIT(A) in deleting the addition of Rs.30crore is upheld. In view of the above, Ground nos. 1 and 2 raised by the revenue in its appeal are hereby dismissed.