SUDHAKAR ARORA,DELHI V. ADIT, CPC, BENGALURU

ITA 4584/DEL/2024

AI Insights

The case involves Sudhakar Arora, the appellant, who contested the disallowance of Rs.7,22,060/- made by the CPC, Bangalore, for late deposit of employees' contributions to PF and ESIC. The initial assessment under section 143(1) of the Income Tax Act, 1961, resulted in a higher income assessment for the appellant due to this disallowance. The CIT(A) upheld this decision, referencing the Supreme Court's decision in Checkmate Services Pvt. Ltd. vs CIT. The appellant argued that the contributions were mostly deposited on time and any delay was due to technical glitches. The Tribunal considered similar cases and the Supreme Court's rulings, ultimately deciding to verify the exact dates of payment and allow deductions for any payments made within the due dates.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 714751 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-08-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Assessment Year: 2018-2019
• Other Referred Cases: Checkmate Services Private Limited vs CIT, Tandem Data Processing Pvt. Ltd. vs ADIT, CPC, Harrisons Malayalam Ltd. vs CIT, Cemetile Industries vs ITO, Guntubolu Uma Sai Prasad vs ITO, Adani Infrastructure and Developers (P.) Ltd. vs ITO, Ms. Nalina Dyave Gowda vs Asstt. DIT, Tarun Construction Company vs ITO, M/s BBG Metal Syndicate Pvt. Ltd. vs DCIT, Nirakar Security & Consultancy Services Pvt Ltd vs ITO, ACIT vs Sunila Sahu
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJAY SHARMA
• Assessee Lawyers: SHAILESH KUMAR
• Keywords: Opportunity of being heard; Business expenditure; Commercial expediency; Capital expenditure; Principle of natural justice; Deemed to accrue or arise in india; FORM 26AS
• Section: 143(3); 139; 37; 14A; 43B; 37(1); 10AA

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH, ‘G’: NEW DELHI BEFORE SHRI SUNIL KUMAR SINGH, JUDICIAL MEMBER AND SHRI BRAJESH KUMAR SINGH, ACCOUNTANT MEMBER ITA No.4584/Del/2024 [Assessment Year: 2018-19] Sudhakar Arora, 4A-1, Block Shopping Centre, Safdarjung Enclave, New Delhi-110029 Vs ADIT, CPC, Bengaluru, Karnataka PAN-AADPA8125D Appellant Respondent Appellant by Shri Shailesh Kumar, CA Respondent by Shri Sanjay Sharma, Sr. DR Date of Hearing 14.05.2025 Date of Pronouncement 08.08.2025 ORDER PER BRAJESH KUMAR SINGH, AM, This appeal by the assessee is directed against the order of the Ld. Addl. Commission of Income Tax/JCIT(A)-4, Hyderabad, dated 22.07.2024, arising out of assessment order passed u/s 143(1) of the Income Tax Act, 1961 (hereinafter referred as ‘the Act’), dated 29.04.2019 for Assessment Year 2018-19. 2. Brief facts of the case:-The assessee is an Individual filed his Return of Income for the AY: 2018-19 on 30-10-2018 and at a total income of Rs.12,15,450/-. The return was processed u/s. 143(1) of the Act by the AO, CPC, Bangalore on 29-04-2019 and income was determined at Rs. 19,37,510/-. There was a disallowance made by the CPC of Rs.7,22,060/- paid by the assessee towards Employees' contribution to PF/ESIC beyond due date as prescribed under the respective Act. Printed from counselvise.com 2 ITA No.4584/Del/2024 3. Aggrieved with the said order, the assessee filed an appeal before the Ld. CIT(A). The Ld. CIT(A) dismissed the appeal of the assessee relying upon the decision of Hon’ble Apex Court in the case of Checkmate Services Private Limited vs CIT (2022) 143 taxmann.com 178 (SC). 4. Aggrieved with the order of the Ld. CIT(A), the assessee is in appeal before us on the following grounds of appeal: “1. That under facts and circumstances, Ld. CIT (A) now NFAC Delhi grossly erred in law as well as on merits in dismissing the appeal as per the amendment in law by the Finance Act 2021, however the same is not applicable to AY 2018-19 2. That under the facts and circumstances, the Ld. CIT (A) now NFAC Delhi grossly erred in law as well on merits in not allowing the late payment of PF/ESI but paid before the due date of filing of ITR of the I.T. Act and thereby making an addition of Rs. 7,22,065/-. 3. That under the facts and circumstances, the Ld. CIT (A) now NFAC Delhi has not considered the Hon'ble ITAT order on the same issue for AY 2019-20.” 5. During the course of the hearing before us, the Ld. Counsel for the assessee submitted as under:- 1. The checkmate case was passed by the A.O. U/s 143(3); however, our case was passed by CPC u/s 143(1)(a). 2. The 1 to 6 days delay in crediting employee contributions to the Employees Provident Fund (EPF) and Employees' State Insurance Corporation (ESIC) accounts were caused by server errors and technical glitches. 3. The Id. CIT(A) has erred in confirming erroneous action of Id. AO of making total additions of Rs. 7,22,060/- on account of late deposit of employees contribution towards PF & ESIC without appreciating fact that most of the month's contributions were deposited on due dates and challan also generated, however due to server error date of credit on Challan is showing delayed payment by 1 to 6 or more days. Printed from counselvise.com 3 ITA No.4584/Del/2024 4. Further CIT(A) had failed to appreciate fact that amendment brought in section 36 & 43B by Finance Act, 2021 is prospective and not retrospective”. 5.1. In support of his contention at srl. No.3 above, the ld. AR relied upon the order of the Co-ordinate Bench of the Ahmedabad Tribunal in the case of Tandem Data Processing Pvt. Ltd. vs ADIT, CPC, in ITA No.1519/Ahd/2024. The relevant extract of the said order is reproduced as below:- “8. On going through the facts of the instant case, on perusal of the challans of payment produced by the Counsel for the assessee, we observe that though the assessee had made payment within the due date, however, there was a one day delay in the date in which this amount was credited to the account of EPF/ESIC. Apparently, this seems to be on account of certain server issues / technical glitches in the system, causing a one day delay in the date of credit of this amount to the account of EPF/ESIC. As per the challans produced before us, the assessee had made the payment on / within the due date prescribed under the respective Act. In our view, looking into the instant facts, this is not a fit case for making disallowance under Section 36(1)(va) of the Act, since on his part the assessee had made payment within the due date prescribed under the respective Act and it was only on account of a technical glitches, there was a one day delay in credit of such amount to the respective account of the PF/ESIC authorities. 9. In the case of FIL India Business & Research Services (P.) Ltd. vs. Deputy Commissioner of Income-tax [2023] 154 taxmann.com 251 (Delhi - Trib.)/[2023] 105 ITR(T) 82 (Delhi - Trib.)[17-01-2023], the ITAT held that since assessee had initially deposited employees dues before prescribed due dates but due to glitches at end of respective authorities, the amounts were reversed by bank, assessee could not be penalized with addition on account of delayed deposits. 10. Accordingly, looking into the instant facts and the judicial precedent cited above, we are of the considered view that the addition / disallowance of Rs. 4,32,177/- on account of delay in contribution to the Provident Fund / ESIC is liable to be deleted. 11. In the result, the appeal of the assessee is allowed.” 6. The Ld. DR supported the orders of the authorities below. Printed from counselvise.com 4 ITA No.4584/Del/2024 7. We have heard both the parties and perused the material available on record. Similar facts and grounds of appeal had come up before the Co- ordinate Bench of the Ahmedabad Tribunal in the case of M/s Checkmate Services Pvt. Ltd. vs DCIT in ITA No.68/Ahd/2023. The grounds of appeal raised in the cited case are reproduced as under:- “1. That on the facts, and in the circumstances of the case and in law, it is objected that the intimation dated 24/12/2019 issued u/s.!43(1)[here in after referred as intimation] by Dy.CIT, CPC, Bangalore [here in after referred as AO] by making adjustments without following the mandatory procedures as under: (i) Neither any intimation nor any show cause notice was issued as specified in Proviso 1 to Section 143(1) before making such adjustments; (ii). Adjustments are made without passing a judicious order and not communicating the reasons of adjustments thus mandatory procedure given in Proviso 2 to section 143(1) not followed. Assessee-Appellant prays before the Hon'ble Tribunal to delete the adjustments made in the intimation dated 24/12/2019 because neither the mandatory procedures nor the Principles of Natural Justice was followed before making such adjustments. GROUNDS OF APPEAL RELATING TO MERITS AND FACTS OF THE CASE: 2. That on the facts, and in the circumstances of the case and in law, the CIT(A)-NFAC, Delhi [here in after referred as CIT(A)] erred in sustaining the addition of Rs.4,20,77,998/- made u/s.36(1)(va) in the intimation without appreciating the fact that processing of return of income u/s.143(1)(a) is not an 'assessment' and scope of adjustment in the intimation is limited thus Hon'ble Supreme Court decision in the case of \"Checkmate Services Pvt Ltd Vs. CIT [2022] 143 taxmann.com 278 (SC)\" held in the context where assessment was framed u/s. 143(3) may not be applicable to the adjustments made in the intimation accordingly the disallowance deserves to be deleted in full. GROUNDS OF APPEAL RELATING TO MERITS AND FACTS OF THE CASE NOT RAISED BEFORE CIT(A)-NFAC,DELHI: 3. That on the facts, and in the circumstances of the case and in law, the CIT(A) erred in sustaining the addition of Rs.4,20,77,998/- made u/s.36(1)(va) in the intimation dated 24/12/2019 without appreciating the fact that employees contribution to PF and ESI are treated as 'Deemed Income' u/s.2(24)(x) in the books of accounts and not being deposited within the due dates specified under the relevant acts as given in Explanation-1 to section 36(1)(va),deduction u/s.36(1)(va) was not claimed thus on its subsequent accounting in the books of account including deposit with additional liability of interest and penalty as specified under the relevant Acts such expenditure changes its colour and is allowable in the hands of the assessee - employer under the following heads: (i) As normal business expenditure under section 37 of the I.T Act,1961; (ii) As business expenditure incurred on account of 'Business and Commercial Printed from counselvise.com 5 ITA No.4584/Del/2024 Expediency' eligible for deduction under section 37 of the I.T Act, 1961. Assessee-Appellant prays before the Hon'ble Tribunal to held the expenditure incurred by the Assessee-Employer on depositing the employees contribution to the revenant Acts due to 'business and commercial expediency' as normal business expenditure deserves to allowed under section 37 of the I. T Act, 1961. , 4. That on the facts, and in the circumstances of the case and in law, the AO erred in treating and taxing the amount of Rs.20,39,969/- twice as income under the \"business or profession\" and as income under the head \"income from other sources\", accordingly assessee prays to tax the amount of Rs.20,39,969/- as \"income from other sources\" not as income under the head \"business or profession\". 5. That the above grounds of appeal are independent and prejudice to each other and the appellant craves leave to add, alter, withdraw or replace any ground or grounds of appeal before or at the hearing of the appeal.” 8. After considering the entire facts, the Tribunal in the above cited case, confirmed the action of the CPC, Bangalore, in making the adjustment of Rs.4,20,77,998/- u/s 143(1) of the Act towards late payment of PF ESIC. 8. At the outset, we observe that the position on this issue has now been unambiguously clarified by the Hon'ble Supreme Court with respect to all Assessment Years prior to AY 2021-22 in the case of Checkmate Services (P.) Ltd. [2022] 143 taxmann.com 178 (SC) wherein the Supreme Court held that for assessment years prior to AY 2021-22, non obstante clause under section 43B could not apply in case of amounts which were held in trust as was case of employee's contribution which were deducted from their income and was held in trust by assessee-employer as per section 2(24)(x), thus, said clause would not absolve assessee-employer from its liability to deposit employee's contribution on or before due date as a condition for deduction. The Supreme Court observed that there is a marked difference between nature and character of assessee-employer's contribution and amounts retained by assessee from out of employee's income by way of deduction wherein one is liability to be paid by employer and second is deemed income as per section 2(24)(x) which is held in trust by assessee-employer, thus, said marked difference was to be borne while interpreting obligation of assessee-employer under section 43B of the Act. The Hon'ble Supreme held that the non obstante clause under section 43B could not apply in case of amounts which were held in trust as was case of employee's contribution which were deducted from their income and was not part of assessee-employer's income, thus, said clause would not absolve assessee-employer from its liability to deposit employee's contribution on or before due date as a Printed from counselvise.com 6 ITA No.4584/Del/2024 condition for deduction. Again the Supreme Court in the case of Harrisons Malayalam Ltd. [2022] 145 taxmann.com 608 (SC), dismissed the SLP of the Department against order of High Court that where assessee-company failed to pay employees’ contribution towards EPF and ESI within due date prescribed in respective Acts, deduction under section 36(1)(va) was not allowable. 9. We observe that ITAT Ahmedabad in the case of Adani Infrastructure and Developers (P.) Ltd. 152 taxmann.com 564 (Ahmedabad - Trib.) has on identical facts, decided the issue against the assessee with the following observations: “4. We observe that the position on this issue has now been unambiguously clarified by the Hon'ble Supreme Court with respect to all assessment years prior to AY 2021-22 in the case of Checkmate Services (P.) Ltd. (supra) wherein the Supreme Court held that for assessment years prior to AY 2021-22, non obstante clause under section 43B could not apply in case of amounts which were held in trust as was case of employee's contribution which were deducted from their income and was held in trust by assessee-employer as per section 2(24)(x), thus, said clause would not absolve assessee-employer from its liability to deposit employee's contribution on or before due date as a condition for deduction. The Supreme Court observed that there is a marked difference between nature and character of assessee- employer's contribution and amounts retained by assessee from out of employee's income by way of deduction wherein one is liability to be paid by employer and second is deemed income as per section 2(24)(x) which is held in trust by assessee-employer, thus, said marked difference was to be borne while interpreting obligation of assessee- employer under section 43B of the Act. The Hon'ble Supreme held that the non obstante clause under section 43B could not apply in case of amounts which were held in trust as was case of employee's contribution which were deducted from their income and was not part of assessee-employer's income, thus, said clause would not absolve assessee-employer from its liability to deposit employee's contribution on or before due date as a condition for deduction. Again the Supreme Court in the case of Harrisons Malayalam Ltd. v. CIT [2022] 145 taxmann.com 608/[2023] 291 Taxman 196/[2022] 449 ITR 391, dismissed the SLP of the Department against order of High Court that where assessee-company failed to pay employees' contribution towards EPF and ESI within due date prescribed in respective Acts, deduction under section 36(1)(va) was not allowable. Recently in the case of Ms. Nalina Dyave Gowda v. Asstt. DIT [2023] 146 taxmann.com 420/199 ITD 28 (Bang. - Trib.) the assessee during, financial year 2018-19 (assessment year 2019-20) made payment of employees' contribution to ESI and PF beyond due date specified under relevant Act and claimed deduction of same under section 36(1)(va). The Assessing Officer made disallowance of employees' contribution to ESI and PF while electronically processing return of income under section 143(1)(a) of the Act. The ITAT held that disallowance under section 143(1)(a) was valid in view of Supreme Court's decision in case of Checkmate Services (P.) Ltd. (supra) and the assessee will not be entitled to deduction of belated Printed from counselvise.com 7 ITA No.4584/Del/2024 payment of ESI and PF of employees' share of contribution as per provisions of section 36(1)(va) of the Act. Again, recently Pune ITAT in the case of Cemetile Industries v. ITO [2022] 145 taxmann.com 209/[2023] 198 ITD 322 (Pune - Trib.) held that where assessee- employer deposited amount of employees contribution towards employees' provident fund and employees' state insurance corporation beyond due date stipulated in respective Acts, disallowance made under section 36(1)(va) was justified. The ITAT further held that adjustment under section 143(1)(a) by means of disallowance made for late deposit of employees' share to relevant funds beyond date prescribed under respective Acts was proper. 4.1 In view of the above observations respectfully following the decision of the Honourable Supreme Court in the case of Checkmate Services (P.) Ltd. (supra) and Harrisons Malayalam Ltd. (supra) and in the light of our observations, we hereby dismiss the assessee's appeal. 5. In the result, the appeal of the assessee is dismissed.” 10. In the case of Ms. Nalina Dyave Gowda [2023] 146 taxmann.com 420 (Bangalore - Trib.) the assessee during, financial year 2018-19 (Assessment Year 2019-20) made payment of employees' contribution to ESI and PF beyond due date specified under relevant Act and claimed deduction of same under Section 36(1)(va). The Assessing Officer made disallowance of employees' contribution to ESI and PF while electronically processing return of income under Section 143(1)(a) of the Act. The ITAT held that disallowance under Section 143(1)(a) was valid in view of Supreme Court's decision in case of Checkmate Services (P.) Ltd. v. CIT [2022] 143 taxmann.com 178 and the assessee will not be entitled to deduction of belated payment of ESI and PF of employees' share of contribution as per provisions of Section 36(1)(va) of the Act. 11. Again, recently Pune ITAT in the case of Cemetile Industries v. ITO [2022] 145 taxmann.com 209 (Pune - Trib.) held that where assesseeemployer deposited amount of employees contribution towards employees' provident fund and employees' state insurance corporation beyond due date stipulated under the respective Acts, disallowance made under Section 36(1)(va) was justified. The ITAT further held that adjustment under Section 143(1)(a) by means of disallowance made for late deposit of employees' share to relevant funds beyond date prescribed under respective Acts was proper. 12. In the case of Guntubolu Uma Sai Prasad 154 taxmann.com 655 (Visakhapatnam - Trib.), the ITAT held that disallowance can be made under Section 143(1)(a) towards employees' contribution to EPF and ESI where assessee made payment towards employees' contribution to EPF and ESI beyond due date prescribed under respective Acts. 13. Accordingly in view of the ambiguous position of the issue which has been settled by the Hon’ble Supreme Court in various decisions referred to above and also various decisions which have held that disallowance can be made on account of late deposit of fee under Section 143(1)(a) of the Act, we hold that the argument of the assessee Printed from counselvise.com 8 ITA No.4584/Del/2024 that such disallowance can be made under Section 143(1)(a) of the Act is hereby rejected. 14. The next argument of the Counsel for the assessee is that in the Audit Report, the auditor has not made any specific observation regarding inadmissibility of the claim u/s 36(1)(va) of the Act which was required to be made by the auditors in the Tax Audit Report and the Auditors have only mentioned the “actual dates” and “due dates” of remittance. Accordingly, in view of the Mumbai ITAT decisions in the case of PR Packaging in ITA No. 2376/Mum/2022 and Kalpesh Synthetics 137 Taxmann.com 475 (Mumbai), this claim of deduction u/s 36(1)(va) of the Act cannot be disallowed u/s 143(1) of the Act (more specifically under sub-clause (d) to 143(1) of the Act). Secondly, the counsel argued that the issue at the time when the disallowance was made, issue was debatable and accordingly could not be the subject matter of disallowance under section 143(1) of the Act. 15. Regarding the argument that the auditors did not specifically mention in the audit report regarding inadmissibility of claim with respect to contributions received from the employees for various funds as referred to in section 36(1)(va) of the Act, it would be useful to reproduce section 143(1) of the Act, which reads as under: “Assessment. 143. (1) Where a return has been made under section 139, or in response to a notice under sub-section (1) of section 142, such return shall be processed in the following manner, namely:— (a) the total income or loss shall be computed after making the following adjustments, namely:— (i) any arithmetical error in the return; (ii) an incorrect claim, if such incorrect claim is apparent from any information in the return; (iii) disallowance of loss claimed, if return of the previous year for which set off of loss is claimed was furnished beyond the due date specified under sub-section (1) of section 139; (iv) disallowance of expenditure [or increase in income] indicated in the audit report but not taken into account in computing the total income in the return; (v) disallowance of deduction claimed under 69[section 10AA or under any of the provisions of Chapter VI-A under the heading \"C.— Deductions in respect of certain incomes\", if] the return is furnished beyond the due date specified under sub-section (1) of section 139; or (vi) addition of income appearing in Form 26AS or Form 16A or Form 16 which has not been included in computing the total income in the return: A perusal of section 143(1) of the Act shows that the words used are “(iv) disallowance of expenditure …indicated in the audit report” Printed from counselvise.com 9 ITA No.4584/Del/2024 16. Therefore, there is no specific requirement under section 143(1) of the Act that the auditor has to make a specific observation regarding “admissibility/inadmissibility” with regard to any claim of expenditure and all that is required under section 143(1) of the Act is that disallowance of such expenditure should be “indicated in the audit report”. Now, on going through the specific clauses of the Tax Auditors Report in Form Number 3CD issued under section 44AB of the Act, we observe that serial number 20(b) of Form Number 3CD, which is specific to allowability of claim of deduction u/s 36(1)(va) of the Act, does not require the auditor to make any specific observation regarding admissibility of the amount under section 36(1)(va) of the Act. At the same time, when we observe several other parts of the tax audit report viz. serial number 21(b)-amounts inadmissible under section 40(a), serial number 21(c)-amounts inadmissible under section 40(b)/40(a)(ia) of the Act (ba), serial number 21(e)- the provision for payment of gratuity not allowable under section 40A(7), serial number 21(f)- any sum paid by the assessee as an employer not allowable under section 40A(9), serial number 21(h) amount of deduction inadmissible in terms of section 14A etc, there is a specific requirement that the auditor has to mention whether the expenditure is admissible/allowable or not. However, so far as section 36(1)(va) of the Act, the audit report does not require the auditor to make a specific observation regarding “admissibility/inadmissibility” of the above expenditure. 17. Therefore, once the auditor has mentioned the “actual” dates of ESI/PF remittance and the “due” dates of ESI/PF remittance by the assessee u/s 36(1)(va) of the Act at serial number 20(b) of the audit report, then, in our considered view, the requirement of section 143(1) of the Act viz. “disallowance of expenditure ….indicated in the tax audit report” stands satisfied and the Department is permitted to make disallowance in terms of section 143(1) of the Act. 18. Regarding the alternate argument of the Counsel for the assessee that the claim of the assessee is allowable under Section 37 of the Act, we would like to refer to the decision of Hon’ble Jodhpur ITAT, in the case of Tarun Construction Company vs. ITO 157 taxmann.com 727 (Jodhpur – Tribunal) and the relevant extracts of the ruling are reproduced for ready reference:- “From the plain reading of the section it can be noted that 'due date' has been defined in the Explanation to mean the date by which assessee is required to credit the employees contribution in the relevant fund under any Act, rule, order or notification issued thereunder or under any standing order, award, contract of service or otherwise. The section nowhere provides that the due date means the date by which the amount is to be deposited under the relevant Statue. For this reason Hon'ble Karnataka High Court in case of CIT v. Sabari Enterprises (2008) 298 ITR 141 at para 12 & 13 of its order held as under:- \"12. After hearing learned counsel for the parties, we have carefully examined the above statutory provisions of the Act including the Printed from counselvise.com 10 ITA No.4584/Del/2024 definition of sections 2(24)(x) and s. 36(1)(va) and 43B(b), which read thus : 2. (24) 'income' includes,— (x) any sum received by the assessee from his employees as contributions to any provident fund or superannuation fund or any fund set up under the provisions of the Employees' State Insurance Act, 1948 (34 of 1948), or any other fund for the welfare of such employees.\" 43(b) any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity or any other fund for the welfare of employees, or\".\"36.(1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in s. 28—. . (va) any sum received by the assessee from any of his employees to which the provisions subclause (x) of clause (24) of s. 2 apply, if such sum is credited by the assessee to the employee's account in the relevant fund or funds on or before the due date. Explanation.—Fur the purposes of this clause, 'due date' means the date by which the assessee is required as an employer to credit an employee's contribution to the employee's account in the relevant fund under any Act, rule, order or notification issued thereunder or under any standing order, award, contract of service or otherwise.\" 13. This clause is inserted by the Finance Act with effect from 1st April, 1988. The Explanation to this clause is read very carefully. \"Due date\" has been explained stating that : means the date by which the assessee is required as an employer to credit contribution to the employees' account in the relevant fund under any Act, rule or order or notification issued thereunder or under any standing order, award, contract of service or otherwise.\" Prior to the above clause was inserted to s. 36 giving statutory deductions of payment of tax under the provisions of the Act, s. 43B(b) was inserted by the Finance Act, 1983, which came into force with effect from 1st April, 1984. Therefore, again the provision of s. 43B(b) clearly provides that notwithstanding anything contained in the other provisions of the Act including s. 36(1) clause (va) of the Act, even prior to the insertion of that clause the assessee is entitled to get statutory benefit of deduction of payment of tax from the Revenue. If that provision is read along with the first proviso of the said section which was inserted by the Finance Act, 1987, which came into effect from 1st April, 1988, the letters numbered as clause (a), or cl. (c) or cl. (d) or cl. (e) or cl. (f) are omitted from the above proviso and therefore deduction towards the employees contribution paid can be claimed by the assessee. The Explanation to clause (va) of s. 36(1) of the Income-tax Act further makes it very clear that the amount actually paid by the assessee on or before the due date applicable in this case at the time of submitting returns of income under s. 139 of the Act to the Revenue in respect of the previous year can be claimed by the assessees for deduction out of their gross income. The Printed from counselvise.com 11 ITA No.4584/Del/2024 above said statutory provisions of the Income-tax Act abundantly makes it clear that, the contention urged on behalf of the Revenue that deduction from out of gross income for payment of tax at the time of submission of returns under s. 139 is permissible only if the statutory liability of payment of provident fund or other contribution funds referred to in cl. (b) are paid within the due date under the respective statutory enactments by the assessees as contended by learned counsel for the Revenue is not tenable in law and therefore the same cannot be accepted by us. However, Hon'ble Supreme Court in case of Checkmate Services Pvt. Ltd. v. CIT (2022) 218 DTR 401 while deciding this issue has observed at Para 51 to 54 held as under:- \"51. The analysis of the various judgments cited on behalf of the assessee i.e., CIT v. AIMIL Ltd. &Ors. (2010) 229 CTR (Del) 418 : (2010) 35 DTR (Del) 68 : (2010) 321 ITR 508 (Del), (Delhi High Court); CIT v. Sabari Enterprises (2007) 213 CTR (Kar) 269 : (2008) 2 DTR (Kar) 394 : (2008) 298 ITR 141 (Kar) (Karnataka High Court).; CIT v. Pamwi Tissues Ltd. (2008) 215 CTR (Bom) 150 : (2008) 3 DTR (Bom) 66 : (2009) 313 ITR 137 (Bom) (Bombay High Court); CIT vs. Udaipur Dugdh Utpadak Sahakari Sangh Ltd. (2014) 265 CTR (Raj) 59 : (2014) 98 DTR (Raj) 109 : (2013) 35 taxmann.com 616 (Raj) [Rajasthan High Court] and Nipso Polyfabriks (supra) would reveal that in all these cases, the High Courts principally relied upon omission of second proviso to s. 43B(b). No doubt, many of these decisions also dealt with s. 36(va) with its Explanation. However, the primary consideration in all the judgments, cited by the assessee, was that they adopted the approach indicated in the ruling in Alom Extrusions. As noticed previously, Alom Extrutions did not consider the fact of the introduction of s. 2(24)(x) or in fact the other provisions of the Act. 52. When Parliament introduced s. 43B, what was on the statute book, was only employer's contribution [s. 36(1)(iv)]. At that point in time, there was no question of employee's contribution being considered as part of the employer's earning. On the application of the original principles of law it could have been treated only as receipts not amounting to income. When Parliament introduced the amendments in 1988-89, inserting s. 36(1)(va) and simultaneously inserting the second proviso of s. 43B, its intention was not to treat the disparate nature of the amounts, similarly. As discussed previously, the memorandum introducing the Finance Bill clearly stated that the provisions-especially second proviso to s. 43B-was introduced to ensure timely payments were made by the employer to the concerned fund (EPF, ESI, etc.) and avoid the mischief of employers retaining amounts for long periods. That Parliament intended to retain the separate character of these two amounts, is evident from the use of different language. Sec. 2(24)(x) too, deems amount received from the employees (whether the amount is received from the employee or by way of deduction authorized by the statute) as income-it is the character of the amount that is important, i.e., not income earned. Thus, amounts retained by the employer from out of the employee's income by way of deduction etc. were treated as Printed from counselvise.com 12 ITA No.4584/Del/2024 income in the hands of the employer. The significance of this provision is that on the one hand it brought into the fold of \"income\" amounts that were receipts or deductions from employees income; at the time, payment within the prescribed time- by way of contribution of the employees' share to their credit with the relevant fund is to be treated as deduction [s. 36(1)(va)]. The other important feature is that this distinction between the employers' contribution [s. 36(1)(iv)] and employees' contribution required to be deposited by the employer [s. 36(1)(va)] was maintained - and continues to be maintained. On the other hand, s. 43B covers all deductions that are permissible as expenditures, or outgoings forming part of the assessees' liability. These include liabilities such as tax liability, cess duties etc. or interest liability having regard to the terms of the contract. Thus, timely payment of these alone entitle an assessee to the benefit of deduction from the total income. The essential objective of s. 43B is to ensure that if assessees are following the mercantile method of accounting, nevertheless, the deduction of such liabilities, based only on book entries, would not be given. To pass muster, actual payments were a necessary precondition for allowing the expenditure. 53. The distinction between an employer's contribution which is its primary liability under law-in terms of s. 36(1)(iv), and its liability to deposit amounts received by it or deducted by it [s. 36(1)(va)] is, thus crucial. The former forms part of the employers' income, and the latter retains its character as an income (albeit deemed), by virtue of s. 2(24)(x) - unless the conditions spelt by Explanation to s. 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 s. 43B. 54. 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 s. 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' Printed from counselvise.com 13 ITA No.4584/Del/2024 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 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 s. 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. With utmost regard to the decision of Hon'ble Supreme Court, it is submitted that it did not take into consideration that Explanation to section 36(1)(va) nowhere provides that due date means the date by which employees contribution to be deposited in the relevant fund under relevant statute but only provides that the amount is to be deposited under the relevant fund under any Act, rule, order or notification issued thereunder or under any standing order, award, contract of service or otherwise. Thus, even if the amount is deposited with delay as per the time limit provided under the relevant fund/law but deposited within the permissible time as provided under the Act, it should be allowed as a deduction to the assessee. Hence, this decision of Hon'ble Supreme Court vis-à-vis the amendment made in section 36(1)(va) by introducing Explanation 2 by Finance Act, 2021 is applicable from AY 2021-22 and not for earlier AYs. Amount is allowable as an expenditure under section 37 of the Act 10. Without prejudice to above, it is submitted that the amount of employees contribution paid by the assessee should be treated as an expenditure allowable as deduction under section 37 of the Act due to the reason that the employees contribution is treated as income of the assessee under section 2(24)(x) of the Act. Further the said amount is allowable as a 'deduction' under section 36 of the Act wherein section 36(1) provides 'The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28'. 11. Section 37(1) of the Act being a 'General' section provides that Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head \"Profits and gains of business or profession\". It is submitted that after treating the employees' contribution as income of the assessee, once it is paid or a liability is accrued for payment being an ascertained liability, the same is allowable as an expenditure under section 37 of the Act. Printed from counselvise.com 14 ITA No.4584/Del/2024 12. While section 37 provides that the expenditure should not be an expenditure of the nature described in section 30 to 36 of the Act, it is submitted that section 36 of the Act does not provide details on nature of expenditure, rather provides specific cases of deductions in computing the total income of the assessee. Further, section 36(1)(va) of the Act starts with the words \"any sum received by the assessee\" hence the restrictionon the expenditures covered under section 30 to 36 of the Act, which is provided in section 37 of the Act is not applicable to section 36(1)(va) of the Act which deals with employees contribution to PF and ESI. In other words, allowance of an expenditure is provided in section 37 of the Act and in section 36 of the Act, few deductions are provided. The other conditions of section 37 of the Act i.e. not being personal or capital in nature and being expended wholly and exclusively and for the business of the assessee are fulfilled and therefore the amount contributed by the assessee being employees' contribution to PF/ESI is allowable as a deduction 37 of the Act. Reliance in this regard is placed on the following cases as well:- M/s BBG Metal Syndicate Pvt. Ltd. v. DCIT in ITA No. 112/CTK/2022 order dated 17-11- 2022 (Cuttack) (Trib.): The Hon'ble ITAT after considering the decision of Hon'ble Supreme Court in case of Checkmate Services Pvt. Ltd. v. CIT 218 DTR 401, at Para 6 & 7 of the order held as under:- \"6. In the case of Nirakar Security & Consultancy Services Pvt Ltd v. ITO in ITA No. 98/CTK/2022 for Assessment Year 2016-17, order dated 17- 10-2022, the Co-ordinate Bench of this Tribunal after considering the arguments of ld AR, has restored the issue to the file of the Assessing officer with the following directions: \"6. Liberty is granted to the ld AR to make all submissions in respect of allowability of disallowed contribution of the employees to PF and ESI under other relevant provisions in the interest of justice. This direction is being given because ld AR has submitted that as the amount is not allowable under section 36(1)(va) of the Act and same is also not covered under section 43B of the Act, the amount of delayed contribution to PF and ESI in respect of employees contribution would be treated as income in the hands of the assessee u/s 2(24)(x) and on subsequent payment of the same, it would be a business expenditure, which can be claimed u/s.37(1) of the Act. We are not expressing any opinion in regard to his arguments as it has not been examined by the lower authorities. Liberty is also granted to the assessee to raise all arguments as are found necessary by him before the lower authorities.\" 7. As the issue in the present appeal is also identical to the issue in the case of Nirakar Security & Consultancy Services Pvt Ltd., (supra), on identical findings the issue in this appeal is restored to the file of the AO for re-adjudication after granting the assessee adequate opportunity of being heard.\" ACIT v. Sunila Sahu MA No. 23/CTK/2022 (Arising out of ITA No. 07/CTK/2022) order dt.13-1-2023 (Cuttack) (Trib.) Printed from counselvise.com 15 ITA No.4584/Del/2024 The Hon'ble ITAT by following the decision of Nirakar Security & Consultancy Services Pvt Ltd v. ITO in ITA No. 98/CTK/2022 for AY 2016-17 order dated 17-10-2022, restored the issue to the file of AO to consider the allowability under section 37(1) of the Act on the payment of employees contribution to PF & ESI. In view of above, even if addition is confirmed under section 36(1)(va) in view of the decision of Hon'ble Supreme Court, amount paid by the assessee during the relevant AYs be directed to be allowed under section 37(1) of the Act.\" 5. We have given a thoughtful consideration to rival submissions and perused materials on record. We have also applied our mind to various decisions cited before us. 6. In so far as factual aspect of the issue is concerned, there is no dispute between the parties that the employees' contribution to PF and ESI were not deposited within the due date prescribed under the PF and ESI Acts in terms of Explanation-1 to section 36(1)(va) of the Act. The said provision makes it clear that if employees' contribution to PF and ESI is not paid within due date provided under the respective statutes, it has to be treated as income of the concerned assessee under section 2(24)(x) of the Act. In accordance with the statutory provision, the departmental authorities have made the disallowances.” 19. Accordingly, in view of the decision of the Hon’ble Supreme Court referred to above in our view, the issue stands decided against the assessee. 20. In the result, the appeal of the assessee is dismissed.” 9. The facts being similar in this case, respectfully following the above decision, the disallowance of Rs,7,22,060/- on account of late deposit employees’ contribution towards PF & ESIC made by the CPC, Bangalore, is confirmed in principle. However, in view of the claim of the assessee in para no.3 of its submission that most of the month's contributions were deposited on due dates and challan also generated, however due to server error date of credit on Challan is showing delayed payment by 1 to 6 or more days, the matter is restored to the file of the Assessing Officer to verify the above contention of the assessee and in case, the payment has been made within due date of the PF ESIC notification and the clearance of the said cheques have been made after the due date due to technical glitch, Printed from counselvise.com 16 ITA No.4584/Del/2024 then the Assessing Officer is directed to delete the said disallowance to that extent in view of the order of the Co-ordinate Bench of the Ahmedabad Tribunal in the case of Tandem Data Processing Pvt. Ltd. vs ADIT, CPC, in ITA No.1519/Ahd/2024. In this regard, we direct the Assessing Officer to verify independently the due dates of the payments of Rs.7,22,060/- and further the Assessing Officer is directed to disallow all such payments out of Rs.7,22,060/-, which has been paid after the due date of the PF/ESIC Act. 10. In the result, the appeal of the assessee is allowed as indicated above. Order pronounced in the open court on 08th August, 2025. Sd/- Sd/- [SUNIL KUMAR SINGH] [BRAJESH KUMAR SINGH] JUDICIAL MEMBER ACCOUNTANT MEMBER Dated 08.08.2025. f{x~{tÜ f{x~{tÜ f{x~{tÜ f{x~{tÜ Copy forwarded to: 1. Appellant 2. Respondent 3. PCIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi, Printed from counselvise.com "