2025 (5) TMI 1863 - AT - Income Tax

Disallowance u/s 36(1)(va) - delayed Employee s PF/ESI Contributions - Disallowance u/s 143(1) - HELD THAT - The Hon ble Supreme Court in Checkmate Services Pvt. Ltd. 2022 (10) TMI 617 - SUPREME COURT (LB) has conclusively held that employee contributions to PF/ESI deposited beyond the statutory due date as prescribed under the relevant Acts are not allowable as deduction u/s 36(1)(va) even if such payment is made before the due date for filing the return under Section 139(1). Applicability of ruling of Checkmate Services Pvt Ltd (supra) the assessee rightly points out that the ruling was delivered after the return was processed the subsequent authoritative interpretation by the Hon ble Apex Court has retrospective effect being a declaration of what the law always was. Disallowance u/s 143(1) cannot be held to be bad in law merely because a contrary High Court view existed at the time of processing. Related to impact of moratorium we find that the moratorium imposed on the assessee bank though factually established and genuinely constraining cannot override the statutory requirement under Section 36(1)(va). No exemption or extension was granted by the EPF/ESI authorities; hence the delay though minimal and caused by compelling circumstances results in forfeiture of the deduction. Disallowance u/s 36(1)(va) of the Act is legally sustainable. Payment towards the Gratuity Fund before the extended due date for filing the return of income - As the payment made by the assessee qualifies for deduction u/s 43B. Accordingly the disallowance made by the Ld. AO is not justified. Consequently the view taken by the Ld. CIT(A) in deleting the addition is upheld.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal are:

- Whether the disallowance of employees' contributions to Provident Fund (PF) and Employees' State Insurance (ESI) under Section 36(1)(va) of the Income-tax Act, 1961, amounting to Rs. 9,44,99,290/-, is justified when such contributions were paid after the statutory due date but before the due date for filing the return of income, especially in light of a moratorium imposed by the Reserve Bank of India (RBI).

- Whether the levy of interest under Section 234C of the Act on deferred payment of advance tax is justified.

- Whether the disallowance under Section 43B of the Act of Rs. 30,00,00,000/- on account of contribution to an approved gratuity fund, paid after filing the tax audit report but before the due date for filing the return of income, is justified.

- Whether the timing of payment of gratuity fund contributions, vis-`a-vis the filing of the original return of income and tax audit report, affects the allowability of deduction under Section 43B.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Disallowance under Section 36(1)(va) for Employees' Contributions to PF/ESI Paid After Statutory Due Date

Relevant Legal Framework and Precedents: Section 36(1)(va) allows deduction of employees' contributions to PF/ESI if deposited on or before the due date prescribed under the respective welfare statutes. The due date is defined by the provident fund or ESI laws, typically the 15th of the following month. The Supreme Court's ruling in Checkmate Services Pvt. Ltd. v. CIT conclusively held that contributions paid beyond the statutory due date are not deductible under Section 36(1)(va), even if paid before the return filing due date under Section 139(1). This ruling overruled earlier High Court decisions that allowed deduction if payment was made before the return filing deadline.

Court's Interpretation and Reasoning: The Tribunal noted that although the assessee filed the return and claimed deduction based on the then-prevailing High Court view, the Supreme Court's subsequent ruling has retrospective effect, declaring the law as it always stood. The Tribunal emphasized the statutory mandate that employee contributions must be deposited within the prescribed due date under the welfare laws to qualify for deduction. The moratorium imposed by the RBI, while factually established and causing a brief delay, did not constitute a legal extension or exemption under the PF/ESI laws. No relaxation was granted by the authorities responsible for the PF/ESI contributions.

Key Evidence and Findings: The assessee's timeline showed a moratorium from March 5 to March 18, 2020, with the due date for February 2020 PF payment being March 15, 2020. The payment was made on March 19, 2020, after the due date but before the return filing deadline. The tax audit report recorded this payment. The assessee argued the delay was solely due to the moratorium.

Application of Law to Facts: The Tribunal applied the Supreme Court's ruling in Checkmate Services to hold that the delay, even if caused by the moratorium, did not entitle the assessee to deduction under Section 36(1)(va). The statutory due date prescribed under the PF/ESI laws is mandatory and cannot be overridden by equitable considerations or external circumstances such as the RBI moratorium.

Treatment of Competing Arguments: The assessee contended that the disallowance was bad in law as the payment was made before the return filing date and that the moratorium constituted a reasonable cause for delay. The Tribunal rejected these arguments, holding that the moratorium did not amount to a statutory extension, and that the Supreme Court's ruling was binding and retrospective. The Revenue's submissions emphasizing the strict statutory compliance and the fiduciary nature of employee contributions were accepted.

Conclusions: The disallowance of Rs. 9,75,96,266/- under Section 36(1)(va) was upheld. The Tribunal held that the moratorium did not provide legal justification for late payment and that the Supreme Court's ruling precluded any deduction for contributions made after the statutory due date.

Issue 2: Levy of Interest under Section 234C of the Act

The interest under Section 234C was levied on deferred payment of advance tax. The Tribunal observed that this issue was consequential to the disallowance under Section 36(1)(va) and did not require separate adjudication. Hence, no detailed analysis was undertaken.

Issue 3: Disallowance under Section 43B for Contribution to Gratuity Fund Paid After Filing Tax Audit Report but Before Return Filing Due Date

Relevant Legal Framework and Precedents: Section 43B allows deduction for specified expenses, including contributions to approved gratuity funds, only if payment is made on or before the due date for filing the return of income under Section 139(1). The second proviso to Section 43B clarifies this timing requirement.

Court's Interpretation and Reasoning: The Tribunal noted that the assessee paid Rs. 30 crores towards the gratuity fund on February 11, 2021, which was after filing the tax audit report but before the extended due date for filing the return (February 15, 2021) as per the relevant government notification. The Tribunal held that the timing of payment satisfied the statutory requirement under Section 43B for allowability of deduction.

Key Evidence and Findings: The payment date and the extended due date for filing the return were supported by documentary evidence, including the tax audit report and government notifications extending the filing deadline. The Revenue did not dispute the payment date but argued that payment after filing the original return violated Section 43B.

Application of Law to Facts: The Tribunal applied the statutory provision clearly permitting deduction if payment is made before the return filing due date, regardless of the tax audit report filing date. The extended due date was recognized as valid under the notification issued due to the pandemic.

Treatment of Competing Arguments: The Revenue's argument that payment after filing the original return was not allowable was rejected, as the statutory provision focuses on payment before the return filing due date, not on the tax audit report or original return filing date. The Tribunal found no legal infirmity in the CIT(A)'s order deleting the disallowance.

Conclusions: The disallowance of Rs. 30 crores under Section 43B was rightly deleted. The payment was timely under the statute, and the deduction was allowable.

3. SIGNIFICANT HOLDINGS

On the issue of disallowance under Section 36(1)(va), the Tribunal affirmed the binding nature and retrospective effect of the Supreme Court's ruling in Checkmate Services Pvt. Ltd., stating:

"The Hon'ble Supreme Court in Checkmate Services Pvt. Ltd. (supra) has conclusively held that employee contributions to PF/ESI deposited beyond the statutory due date, as prescribed under the relevant Acts, are not allowable as deduction under Section 36(1)(va), even if such payment is made before the due date for filing the return under Section 139(1). ... The plea regarding the RBI moratorium, though factually accurate, cannot prevail over the express language of the statute."

The Tribunal emphasized the strict statutory compliance required for employee contributions, noting the fiduciary nature of such funds and the absence of any legislative or regulatory extension of due dates:

"The statutory due date prescribed under the PF/ESI laws is mandatory and cannot be overridden by equitable considerations or external circumstances such as the RBI moratorium. No exemption or extension was granted by the EPF/ESI authorities; hence, the delay, though minimal and caused by compelling circumstances, results in forfeiture of the deduction."

Regarding the disallowance under Section 43B, the Tribunal held:

"Section 43B of the Act permits the deduction of contributions made to an approved Gratuity Fund, provided the payment is made on or before the due date for filing the return of income under Section 139(1) of the Act. The payment made by the assessee before the extended due date for filing the return qualifies for deduction under Section 43B. The disallowance made by the AO is not justified."

On the interest under Section 234C, the Tribunal noted it is consequential and did not require separate adjudication.

Final determinations:

• The disallowance of Rs. 9,44,99,290/- under Section 36(1)(va) for delayed employee contributions to PF/ESI is upheld.
• The interest levied under Section 234C is consequential and stands as per the order below.
• The disallowance of Rs. 30,00,00,000/- under Section 43B for gratuity fund contribution paid after filing the tax audit report but before the return filing due date is deleted.