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Facts
The assessee company, engaged in security and manpower services, filed its return for AY 2021-22 claiming a refund. The AO disallowed employees' contribution to PF and ESI not credited by the due date, and also made adjustments regarding TDS. The CIT(A) partly allowed the appeal, upholding the disallowance of PF/ESI contributions.
Held
The Tribunal held that the assessee could not be penalized for the delay in depositing employees' contribution to PF & ESI due to the complete/partial lockdown caused by the COVID-19 pandemic. Therefore, both the AO's and CIT(A)'s orders were set aside.
Key Issues
Whether the disallowance of employee's contribution to PF & ESI due to late deposit during the COVID-19 lockdown is justified.
Sections Cited
Section 143(1), Section 36, Section 250(6), Section 250(6A)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH “C”: 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 31.03.2025 of Learned Commissioner of Income Tax (Appeals), Ranchi [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 28.12.2022 of Learned Assessing Officer/Central Processing Centre, Bangaluru (hereinafter referred to as “Ld. AO") passed under section 143(1) of the Act for assessment year 2021-22.
The brief facts of case are that the Ld. AO’s report on ITNS- 51 was not received. The company is engaged in security and securities services. Sum received from employees as contribution to PF and ESI to the extent not credited to the employee account on or before the due date has been added back though the same has been paid before the due date of filing the return. TDS has been proportionately allowed on the basis of receipts as per 26AS and as per financials, ignoring the fact that the government departments deduct TDS in the year in which they make the payment, irrespective of the year of billing. The company is engaged in security and other manpower services and had filed its return of income for AY 2021-22 on 05.02.2022 with all due taxes paid and claiming a refund of Rs.82,38,508/-. A communication of proposed adjustment under Section 143(1)(a) of the Act dated 23.12.2022 was received from CPC, Bangalore. The same was replied online with sighting the reason of Covid 19. The intimation under Section 143(1) of the Act was passed on 28.12.2022 in which an amount of Rs.93,93,596/- has been disallowed under section 36 of the Income Tax Act, on account of employees contribution to any provident fund or any fund set up under ESI Act or any other fund for the welfare of employees to the extent not credited to the employees account on or before the due date. The delay in such deposit was for April to June, 2020 only, during which complete/partial lockdown was there. Further TDS has been allowed proportionately on the basis of the receipts as per 26AS & as per Statement of Profit & Loss. On completion of proceedings, Ld. AO vide order dated 28.12.2022 made addition of Rs.96,93,596/- on account of disallowance under Section 36 of the Act.
Against order dated 28.12.2022 of Ld. Assessing Officer, the appellant/assessee preferred appeal before Ld. CIT(A) which was partly allowed vide order dated 31.03.2025 by upholding disallowance of employees contribution towards PF and ESI amounting to Rs.96,35,596/- and directed the Ld. AO to verify factual creditworthiness of claim regarding not granting of TDS credit of Rs.87,94,799/- as against TDS amounting to Rs.96,35,596/-.
Being aggrieved, the appellant/assessee preferred present appeal on following grounds:
“Due to COVID 19 lockdown, PF & ESI were late deposited for the month from April to June 2020. Further section 250(6) & 250(6A) have not been complied with.”
Learned Authorised Representative for appellant/assessee submitted that Ld. CIT(A) erred in not appreciating the fact that the appellant/assessee had paid Rs.96,93,596/- being the share of employees of PF & ESI during the year 2020-21 from April to June 2020 only during complete and partial lockdown. The appellant had submitted explanation online of IT Portal which is reproduced below:
"The delay period of deposit of ESI and EPF is from April 20 to June 20. It was Covid 19 times and all offices were shut down with zero movement. Further we are providing services to central govt offices. As per Labour act the principal employer is responsible for timely release of wages, PF and ESI in order to deposit statutory liabilities in time. However they have released the payment after 3 months. Due to these reasons there was a delay in deposit of ESI and PF and accordingly request you to condone the delay specially because of the COVID 19 shutdown."
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 28.12.2022 disallowed Rs.96,93,596/- under Section 36 of the Act on account of delayed payment of employees contribution to PF & ESI. The delay in such deposit was for April to June, 2020 only, was during complete/partial lockdown due to pandemic Covid 2019. Ld. CIT(A) vide order dated 31.03.2025 had confirmed disallowance of Rs. 96,93,596/- and directed Ld. AO to verify claim regarding not granting of TDS credit of Rs.87,94,700/- as against TDS of Rs.94,24,707/-. In view of complete/partial Lockdown due to Pandemic Covid 2019, the assessee cannot be penalized for the delay in deposit of employees contribution to PF & ESI. Therefore, both the impugned orders dated 31.03.2025 and 28.12.2022 are set aside.
In the result, the appeal of filed by the assessee is allowed.
Order pronounced in the open court on 28th January, 2026. Sd/- Sd/- (S RIFAUR RAHMAN) (VIMAL KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 28/01/2026 Mohan Lal