Facts of the Case

The assessee, SBW Udyog Ltd., filed appeals against orders of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, for Assessment Years 2017-18 and 2019-20. The Assessing Officer had made additions to the income of the assessee on account of delayed deposit of employees’ contributions towards Provident Fund (PF) and Employees’ State Insurance (ESI).

Although the contributions were deposited before the due date of filing the income tax return under Section 139(1), they were paid after the due dates prescribed under the respective PF and ESI statutes. The additions were made under Section 36(1)(va) read with Section 2(24)(x) of the Income-tax Act.

Issues Involved

  1. Whether employees’ PF/ESI contributions deposited after statutory due dates but before filing the income tax return are allowable deductions.
  2. Whether Section 43B can override Section 36(1)(va) in respect of employees’ contributions.
  3. Whether the disallowance confirmed by CIT(A) was legally sustainable.

Petitioner’s Arguments (Assessee)

  • The assessee contended that the contributions had been deposited before the due date of filing the return under Section 139(1).
  • It was argued that such payments should be allowed as deductions, relying on earlier judicial precedents where courts permitted deductions if payment was made before return filing.

Respondent’s Arguments (Revenue)

  • The Revenue submitted that employees’ contributions are governed specifically by Section 36(1)(va), which requires deposit within the due dates under the relevant welfare statutes.
  • It was argued that Section 43B applies only to employer contributions and cannot cure delays in employees’ contributions.
  • The Revenue relied on the Supreme Court decision in Checkmate Services (P) Ltd., which clarified the legal position against the assessee.

Court Order / Findings (ITAT)

  • Employees’ contributions to PF/ESI must be deposited within the due dates prescribed under the respective Acts.
  • Payment after those dates results in disallowance under Section 36(1)(va).
  • Section 43B cannot be invoked to allow delayed employees’ contributions.
  • The issue now stands settled by the Supreme Court in Checkmate Services (P) Ltd., which is binding.

Important Clarification

  • Employees’ contributions and employer contributions are treated differently under the Income-tax Act.
  • Deduction for employees’ share is allowed only if deposited within statutory due dates under PF/ESI laws.
  • Payment before the income tax return filing date does not cure the delay for employees’ contributions.
  • The ruling reinforces strict compliance requirements for payroll-related statutory deposits.

Link to download the order - https://itat.gov.in/public/files/upload/1670582295-ITA%20Nos.%2032%20and%2033%20Alld%202022%20SBW%20Udyog%20Ltd.pdf

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