Facts of the Case

The assessee, SIS Limited, Patna, filed its return of income for Assessment Year 2018-19 on 28.11.2018 declaring total income of ₹46,25,56,430. The case was selected for scrutiny under CASS and statutory notices were issued. During assessment proceedings, it was noticed from Form 3CD (Clause 20(b)) that employees’ contributions to PF/ESI amounting to ₹15,59,60,900 were not deposited within the due dates prescribed under the respective Acts. The Assessing Officer made disallowance under Section 36(1)(va) while processing under Section 143(1)(a) and further disallowed ₹26,60,000 under Section 43B during assessment, determining total income at ₹62,11,77,330. The CIT(A), NFAC partly allowed the appeal by granting relief where payments were within due dates and sustained the balance disallowance relying on the Supreme Court judgment in Checkmate Services Pvt. Ltd.

Issues Involved

Whether employees’ PF/ESI contributions deposited beyond the due date prescribed under the respective welfare Acts are allowable as deduction, and whether contributions relating to arrear salary paid in a later month but wrongly reported on the PF/ESI portal can be disallowed solely on account of reporting error.

Petitioner’s Arguments

The assessee contended that substantial amounts were deposited before the due date under the Income-tax Act and that delays occurred due to factors beyond its control. It was further argued that an amount of ₹1,91,41,258 related to arrears of salary arising from retrospective wage revision, actually paid in September, but wrongly reported by the tax auditor as pertaining to earlier months on the PF/ESI portal. It was submitted that such reporting error should not result in disallowance.

Respondent’s Arguments

The Revenue relied on the orders of the Assessing Officer and the CIT(A) and submitted that the issue of delayed employees’ contribution is squarely covered against the assessee by the Supreme Court judgment in Checkmate Services Pvt. Ltd. It was argued that the CIT(A) had already granted appropriate relief wherever payments were within permissible limits.

Court Order / Findings

The ITAT Patna observed that the disallowance relating to delayed employees’ PF/ESI contribution is squarely covered by the judgment of the Hon’ble Supreme Court in Checkmate Services Pvt. Ltd. vs. CIT. Accordingly, Grounds 1 to 4 raised by the assessee were dismissed. With regard to Ground No. 5 relating to disallowance of ₹1,91,41,258, the Tribunal noted that the amount represented arrears of salary paid in September pursuant to retrospective wage revision but was wrongly reported on the PF/ESI portal as relating to earlier months. The Tribunal held that in the case of arrears, the due date should be reckoned from the month of actual payment. Since verification was required, the issue was remitted to the file of the Assessing Officer for fresh examination.

Important Clarification

The Tribunal clarified that while delayed deposit of employees’ contribution beyond the statutory due date is not allowable in view of the Supreme Court ruling in Checkmate Services, contributions arising from arrear salary require examination of the actual due date based on the month of payment, and mere reporting error on the PF/ESI portal cannot automatically justify disallowance without verification.

Final Outcome

The appeal filed by the assessee was partly allowed for statistical purposes. The disallowance of delayed employees’ PF/ESI contributions was upheld, while the issue relating to ₹1,91,41,258 towards arrear salary contributions was restored to the file of the Assessing Officer for fresh verification and adjudication in accordance with law.

 

Link to download order 
 https://www.mytaxexpert.co.in/uploads/1769148806_SISLIMITEDPATNA.pdf 

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