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Facts
The assessee declared an income and claimed a refund. The AO issued notices for variance, and after the assessee's reply regarding PF and ESI, a further notice for variance was issued. The AO made an addition of Rs. 85,57,433/-. The CIT(A) partly allowed the appeal, upholding the disallowance of employees' contribution to PF and ESI.
Held
The Tribunal noted that employees' contributions to PF and ESI are recovered from employees upon salary disbursement, and the due date for deposit is typically within 15 days of the following month. The Tribunal also considered the alternative plea for deduction under Section 37 of the Act, finding it to be without merit as it was specifically covered by Section 36(1)(va). However, the methodology of calculating the default date for PF/ESI was not examined by the AO or CIT(A).
Key Issues
Whether the disallowance of employees' contribution to PF/ESI for delayed payment is justified, and whether the due date for deposit should be based on salary disbursement.
Sections Cited
143(1), 43B, 36(1)(va), 37(1), 250
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Income Tax Appellate Tribunal, DELHI BENCH “F”: NEW DELHI
Before: SHRI S RIFAUR RAHMAN & SHRI VIMAL KUMAR
PER VIMAL KUMAR, JUDICIAL MEMBER:
The appeal filed by the assessee is against order dated 26.06.2025 of Learned Commissioner of Income Tax (Appeal), Thiruvanantpuram [hereinafter referred to as ‘Ld. CIT(A)] under Section 250 of the Income-Tax Act, 1961 (hereinafter referred to as ‘the Act’) arising out of order dated 10.12.2019 of Learned Assessing Officer/Central Processing Centre, Bengaluru (hereinafter referred to as “Ld. AO") passed under section 143(1) of the Act for assessment year 2018-19.
The brief facts of case are that the return of income was by the appellant/assessee declaring an income of Rs.47,83,880/- claiming a refund of Rs.26,09,120/-. Notice under Section 143(1)(a) of the Act was issued for variance of Rs.2,03,32,680/- duly replied having claimed the liability of PF as also of ESI since deposited within the time provided under Section 43B of the Act. Thereafter, another notice under Section 143(1)(a) of the Act claiming variance of Rs.85,57,433/- was issued which was not replied by the appellant/assessee. On completion of proceedings, Ld. AO vide order dated 10.12.2019 made addition of Rs.85,57,433/-.
Against order dated 10.12.2019 of Ld. Assessing Officer, the appellant/assessee preferred appeal before Ld. CIT(A) which was partly allowed vide order dated 26.06.2025 by upholding disallowance of employees contribution towards PF and ESI.
Being aggrieved, the appellant/assessee preferred present appeal on following grounds:
“That the learned Deputy Commissioner of Income Tax (CPC) was erred in law & otherwise in facts adding a sum of Rs.85,57,433/- [75,13,647 + 10,43,786 PF + ESI] towards amount credited from employees but not paid within the stipulated time added in our income provided u/s. 36(1)(va) the addition so made are arbitrary and uncalled for in the circumstances of the case.”
Learned Authorised Representative for appellant/assessee submitted that Ld. CIT(A) erred in dismissing the appeal. Reliance was placed on order dated 12.03.2025 in titled as “Alaknanda Associates Vs. ADIT” in the assessee’s own case for AY 2019-20.
Learned Authorised Representative for the Department of Revenue relied on order of Ld. CIT(A).
From examination of record in light of aforesaid rival contentions, it is crystal clear that Ld. AO vide order dated 10.12.2019 disallowed Rs.85,57,433/- under Section 36 of the Act on account of delayed payment of employees contribution to PF & ESI.
7.1 A Co-ordinate Bench in order dated in paras 6 & 7 held as under:
“6. However, we also observed that the issue is decided without appreciating the fact that employees contribution to PF and ESI are recovered from the employees on disbursement of salary and wages. Accordingly, due date for deposit of employees contribution to PF and ESI i.e. within 15 days of the following month during which salary and wages was actually disbursed among the employees, thus it is observed that employees contribution to PF and ESI was actually deposited on or before 15th of the following month in which salary and wages actually disbursed. Coming to this alternative plea which was considered by the coordinate Bench in the case of Benson Movers Pvt. Ltd. passed in for assessment year 2019-20 and the relevant decision of the coordinate Bench is as under :- “5. In so far as employees contributions towards PF & ESI it is noticed that the issue as to whether the due date under PF/ESI Acts should be as per the calendar month for which the salary is payable or from the month in which the salary is paid to the employee by the employer came up for adjudication in the case of Sentinel Consultants Pvt. Ltd. Vs. ACIT (supra) and the Tribunal restored the issue to the file of the AO with the following observations:- “9. We have carefully considered the rival submissions and perused the material available on record. The disallowance of employees’ contribution to PF/ESIC for breach of condition under Section 36(1)(va) is in controversy. 9.1 We notice at the outset that an opportunity was given via electronic platform of the deptt. For the proposed adjustments and in the absence of eresponse, the adjustments were carried out the CPCBangluru and intimation was issued enhancing the assessed income in the captioned assessment years. The CIT(A) in the first appeal has sustained the adjustments towards belated deposits of employees’ contribution to PF/ESIC in the light of the judgment rendered by the Hon’ble Supreme Court in Checkmate Pvt. Ltd. vs. CIT (2022) 143 taxmann.com 178 (SC). The contention of the Assessee that such additions cannot be made under the umbrella of S. 143(1) is covered against the assessee the decision of the coordinate bench in the case of Weather Comfort Engineers Private Limited vs. ACIT-CPC order dated 15/02/2023. The action of CPC and CIT(A) thus cannot be faulted where some opportunity was admittedly given for e- response. 9.2 We now turn to alternate plea on behalf of the assessee for grant of deduction under general provisions for deduction of expenditure under S. 37 of the Act. We do not see any merit in such plea that the belated deposit of employees contributions to PF/ESIC governed under Section 36(1)(va) is also simultaneously amenable to deduction under Section 37(1) of the Act. In terms of the provision, Section 37(1) permits deduction of expenditure which is not in the nature of expenditure prescribed in Sections 30 to 36 of the Act and also not being in the nature of capital expenditure or personal expenses of the assessee. Thus, in view of such mandate of law, the deduction of expenditure under the general clause of Section 37(1) would not extend to expenditure specially covered within the ambit of Section 36(1)(va) of the Act. The Hon’ble Supreme Court in the case of Checkmate Pvt. Ltd. (supra) itself explains this position in Para 32 of the Judgment. Such view also draws support from the observations made in recent judgment of the Hon’ble Supreme Court in the case of Pr.CIT vs. Khyati Realtors (P) Ltd. (2022) 141 taxmann.com 461 (SC). The alternate plea is thus without any merit. 9.3 We also take note of yet another plea made out on behalf the assessee towards methodology of calculation of default under the relevant PF/ESIC Act. The Ld. Counsel contends that the month during which the disbursement of salary is actually made would be relevant for the purposes of determination of due date of deposit under the respective statute. The accrual of liability towards payment of salary without actual disbursement would not fasten obligation for deposits of employees contribution in the labour Acts per se. as observed by the co-ordinate bench in Kanoi Paper and Industries Ltd. vs. ACIT 5 (2002) 75 TTJ 448 (Cal). This aspect has not been found to be examined by the Assessing Officer or CIT (A). Hence without expressing any opinion on merits on this aspect, we deem it expedient to restore the matter to the file of designated AO. It shall be open to the assessee to place factual matrix before the AO and take such plea for evaluation of the AO. The AO shall examine this aspect and fresh order in accordance with law after giving proper opportunity.”
We find similar view has been taken by the coordinate benches in the cases of B. L. Kashyap & Sons Ltd. (supra) and VVDN Technologies Pvt. Ltd. (supra). The ld. Counsel submits that in view of these decisions the matter may be restored to the Assessing Officer to ascertain the due date for remittance of the PF/ESI contributions of employees. Considering the decisions of the coordinate benches referred to above we restore this issue to the file of the Assessing Officer to decide in the light of the observations made by the Tribunal in the case of Kanoi Paper & Industries Ltd. Vs. ACIT (supra). Needless to say that the Assessing Officer shall provide adequate opportunity of being heard to the assessee and the assessee is at liberty to provide all the necessary information in support of its contention.”
Since the above issue is squarely covered by the above decision, we are inclined to remit the issue back to the file of AO to consider the alternative plea of the assessee as per law after giving proper opportunity of being heard to the assessee. Accordingly, this appeal is partly allowed for statistical purposes.”
7.2 In view of above facts, the impugned order dated 26.06.2025 of Ld. CIT(A) dated 26.06.2025 and order dated 10.12.2019 of Ld. AO are set aside and the matter is restored to file of Ld. AO for fresh decision in accordance with law after affording fair opportunity of hearing to the Assessee.
In the result, the appeal of filed by the assessee is allowed for statistical purposes.
Order pronounced in the open court on 30th January, 2026. Sd/- Sd/- (S RIFAUR RAHMAN) (VIMAL KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 30/01/2026 Mohan Lal