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Facts
The assessee claimed deduction for employee's contribution to Provident Fund and ESI. These contributions were deposited with the Government after the due date stipulated by the relevant Acts but before the filing of the income tax return. The Assessing Officer disallowed the deduction.
Held
The Tribunal held that as per the Supreme Court decision in Checkmate Services Pvt. Ltd., employee's contributions deducted from salary and held in trust are deemed income under Section 2(24)(x) and their deductibility under Section 36(1)(va) is conditional upon deposit on or before the due date. Therefore, the disallowance was justified.
Key Issues
Whether employee's contribution to PF/ESI, deposited after the due date but before the return filing date, is eligible for deduction under the Income Tax Act.
Sections Cited
143(1), 36(1)(iv), 36(1)(va), 2(24)(x), 43B
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Income Tax Appellate Tribunal, DELHI BENCH “SMC”: NEW DELHI
O R D E R
The appeal in AY 2020-21 arises out of the order of the ld. Jt. Commissioner of Income Tax (Appeals)-1, Chandigarh [hereinafter referred to as ‘ld. JCIT(A)’, in short] in Appeal No. ITBA/APL/S/250/2023-24/1058919386(1) dated 20.12.2023 against the order of assessment passed u/s 143(1) of the Income-tax Act, 1961 dated 03.11.2021 (hereinafter referred to as ‘the Act’) by NFAC (hereinafter referred to as ‘ld. AO’).
At the outset, I find that there is a delay in filing of appeal by the assessee by 487 days before me. Considering the reasons adduced in the condonation petition supported with an affidavit placed on record, I am inclined to condone the delay and admit the appeal of the assessee for adjudication.
Though the assessee has raised several grounds, the only effective issue to be decided in this appeal is as to whether the ld CIT(A), NFAC was justified in upholding the disallowances made on account of employees contribution of Provident Fund/ ESI in the facts and circumstances of the case.
I have heard the Learned DR and perused the materials available on record. As evident from the statement of facts filed before me , it is not in dispute that the employees’ contribution to provident fund and ESI were deposited by the assessee to the Government account beyond the due dates prescribed under the respective acts but well before the date of filing the return of income. I find that the recent decision of the Hon'ble Supreme Court in the case of Checkmate Services Pvt. Ltd Vs. CIT reported 448 ITR 518 had settled the entire dispute to rest by deciding it in favour of the revenue by observing as under:-
“53. The distinction between an employer’s contribution which is its primary liability under law – in terms of Section 36(1)(iv), and its liability to deposit amounts received by it or deducted by it (Section 36(1)(va)) is, thus crucial. The former forms part of the employers’ income, and the later retains its character as an income (albeit deemed), by virtue of Section 2(24)(x) - unless the conditions spelt by Explanation to Section 36(1)(va) are satisfied i.e., depositing such amount received or deducted from the employee on or before the due date. In other words, there is a marked distinction between the nature and character of the two amounts – the employer’s liability is to be paid out of its income whereas the second is deemed an income, by definition, since it is the deduction from the employees’ income and held in trust by the employer. This marked distinction has to be borne while interpreting the obligation of every assessee under Section 43B.
In the opinion of this Court, the reasoning in the impugned judgment that the non-obstante clause would not in any manner dilute or override the employer’s obligation to deposit the amounts retained by it or deducted by it from the employee’s income, unless the condition that it is deposited on or before the due date, is correct and justified. The non-obstante clause has to be understood in the context of the entire provision of Section 43B which is to ensure timely payment before the returns are filed, of certain liabilities which are to be borne by the assessee in the form of tax, interest payment and other statutory liability. In the case of these liabilities, what constitutes the due date is defined by the statute. Nevertheless, the assessees are given some leeway in that as long as deposits are made beyond the due date, but before the date of filing the return, the deduction is allowed. That, however, cannot apply in the case of amounts which are held in trust, as it is in the case of employees’ contributions- which are deducted from their income. They are not part of the assessee employer’s income, nor are they heads of deduction per se in the form of statutory pay out. They are others’ income, monies, only deemed to be income, with the object of ensuring that they are paid within the due date specified in the particular law. They have to be deposited in terms of such welfare enactments. It is upon deposit, in terms of those enactments and on or before the due dates mandated by such Page | 2 concerned law, that the amount which is otherwise retained, and deemed an income, is treated as a deduction. Thus, it is an essential condition for the deduction that such amounts are deposited on or before the due date. If such interpretation were to be adopted, the non-obstante clause under Section 43B or anything contained in that provision would not absolve the assessee from its liability to deposit the employee’s contribution on or before the due date as a condition for deduction.
In the light of the above reasoning, this court is of the opinion that there is no infirmity in the approach of the impugned judgment. The decisions of the other High Courts, holding to the contrary, do not lay down the correct law. For these reasons, this court does not find any reason to interfere with the impugned judgment. The appeals are accordingly dismissed.”
Pursuant to the aforesaid decision of the Hon’ble Supreme Court, the claim of deduction towards employee’s contribution to PF & ESI made by the assessee becomes an incorrect claim warranting prima facie adjustment u/s.143(1) of the Act. Accordingly, the grounds raised by the assessee are dismissed.
In the result, appeal of the assessee is dismissed.
Order pronounced in the open court on 27/08/2025.