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Facts
The assessee filed appeals against the NFAC order for AY 2017-18 and 2018-19, which confirmed disallowance of employees' contributions to Provident Fund (PF) and Employees' State Insurance (ESI) under section 36(1)(va) read with section 143(1) of the Income-tax Act. The assessee contended that marginal delays in deposits were not attributable to their fault but due to the EPFO website being out of order, preventing timely challan generation.
Held
The Tribunal held that if the delay in depositing PF and ESI contributions is not due to the assessee's failure but rather due to a system failure (EPFO website being non-functional), then the assessee should not be penalized. It distinguished the Supreme Court's ruling in *Checkmate Services Pvt. Ltd. v. CIT-1*, stating it does not apply when the delay is not attributable to the assessee. Consequently, the disallowance confirmed by the CIT(A) was deleted.
Key Issues
Whether disallowance for delayed employee PF/ESI contributions is warranted when the delay is caused by technical issues with the EPFO website, and if the Supreme Court's *Checkmate Services* judgment is applicable in such circumstances.
Sections Cited
Section 36(1)(va) of the Income-tax Act, 1961, Section 143(1) of the Income-tax Act, 1961
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH: ‘F’ NEW DELHI
the order passed by NFAC of even dated 20.10.2022 for the assessment years 2017-18 and 2018-19 in relation to the adjustment made under section 143(1) of the Income-tax Act, 1961 (in short ‘the Act’) & 2959/Del/2022 AYs: 2017-18 & 2018-19
The grounds raised relate to disallowance made under section 36(1)(va) of the Act vide intimation dated 2nd March, 2020 under section 143(1) of the Act on delayed deposit of employees contribution to Provident Fund (PF) and Employees’ State Insurance (ESI) within the prescribed due date. In the assessment year 2017-18, the disallowance made is Rs. 24,87,238/- and for assessment year 2018-19 disallowance made is Rs.12,52,707/-.
Learned CIT(A) has confirmed the disallowance after relying upon the decision of Hon’ble Supreme Court in case of Checkmate Services Pvt. ltd. Vs. CIT-1 in Civil Appeal No. 2833 of 2016.
Before us, learned counsel for the assessee submitted that most of the employees’ contributions to PF and ESI account have been paid within the due date, however, in some cases the delay is only marginal of 3 to 7 days. The delay is not attributable to the assessee because the EPFO website was not working properly due to which EPF challan could not be generated. In support, he has also filed copy of email written to SRO, Noida, EPFO, stating that EPFO site was not working on these dates. He has also filed copy of screenshots of the site showing that it was out of order. This has also been explained before the CIT(A) also. Once the delay is & 2959/Del/2022 AYs: 2017-18 & 2018-19 not attributable to the assessee because of the EPFO website was not working and was out of order, then the assessee cannot be said to have violated any deadline of the provisions of the respective Act. Thus, it cannot be said that there is a delay in depositing of PF and ESI within the prescribed due date. Here it is not a case of whether the decision of Hon’ble Supreme Court in case of Checkmate (supra) has to be applied because the Hon’ble Supreme Court has held that if there is a delay in the payment beyond the prescribed due date provided in the respective Act, the same shall be treated as the income of the assessee. Once the delay in depositing the PF and ESI is not on account of failure of the assessee, but the failure of the system of website itself as it was out of order and challans cannot be uploaded, then it cannot be held that the assessee should be fastened with such a liability.
Accordingly, the disallowance confirmed by the CIT(A) is deleted.
In the result, both the appeals of the assessee are allowed.
Order pronounced in the open court on 14th February, 2024