Late deposit of employees contribution to the provident fund and ESI, cannot be disallowed if it is deposited before the due date of the filing of the return of an income 

ITAT Delhi

Aroon Facilitation Management Services Pvt Ltd Vs DCIT

ITA No. 1824/Del/2020

The CPC Bangalore had made adjustment of Rs. 9,59,624 u/s 143(1)(a) on account of late payment of PF & ESI claimed by the assessee on the ground that this was not paid within prescribed due date and deposited late in the light of provision of Section 2(24)(x) read with section 36(1)(va) of Act.

 Aggrieved by order of the DCIT, CPC, the assessee filed an appeal before the CIT (A). The CIT (A) held that CPC was justified in making the addition u/s 36(v)(va) read with section 2(24)(x) of the Act for employees’ contribution which was not paid by the due date of the relevant funds and dismissed the appeal filed by the assessee.

On appeal, the isaue before Delhi Tribunal was whether late deposit of employees contribution to the provident fund and ESI, cannot be disallowed if it is deposited before the due date of the filing of the return of an income but beyond the due date prescribed Under the respective provident fund and ESI laws.

ITAT held it in favour of the assessee with following observation.

Coordinate Bench of the Tribunal in the case of Insta Exhibitions Pvt. Ltd., New Delhi vs Addl. CIT, Special Range-4, New Delhi vide ITA. No. 6941/Del./2017 order dated 03.08.2021 while allowing such belated deposit of employees’ contribution to PF & ESI as per the respective Act, but, paid before the due date of filing of the income tax return, deleted such disallowance by observing as under “contribution was admittedly not deposited by the assessee within the due date prescribed under the respective ESI and PF statue however, same was deposited before the due date of filing of return of income.

 Therefore, the AO as well as the ld CIT (A) disallowed the same holding that such contribution becomes the income of the assessee under the provision of section 2(24)(x) of the Act and thereafter if the same is deposit within the due date prescribed under the respective laws then same is allowable as deduction u/s 36(1)(va) of the Act.

Coordinate bench in case of DCIT Vs Dee Development Engineers in ITA No. 4959/DEL/2016 has held as Under

In view of this allow the solitary ground of appeal raised by the assessee holding that the addition/disallowance made by the assessing officer of late deposit of employees contribution to the provident fund and ESI, as it is deposited before the due date of the filing of the return of an income but beyond the due date prescribed Under the respective provident fund and ESI laws is not sustainable in law. In the result, appeal of the assessee is allowed.”;

since in the instant case the assessee admittedly has deposited the employees’ contribution to PF & ESI before the due date of filing of the income tax return, therefore, respectfully following the decisions, it was hold that the CIT(A) is not justified in sustaining the adjustment made by the A.O-CPC of Rs. 9,59,624/- on account of belated payment of employees’ contribution to PF & ESI. Therefore, set aside the order of the CIT(A) and direct the A.O. to delete the disallowance. The grounds raised by the assessee are accordingly allowed. In the result, appeal of the Assessee is allowed.