Mumbai ITAT: Employee Contributions to PF/ESI Can’t be Deducted After Due Date

Employees’ contribution to PF/ESI deposited post-due date under the Income Tax Act is not allowable as a deduction under Section 36(1)(va) of the Income Tax Act, 1961, the Mumbai bench of the Income Tax Appellate Tribunal (ITAT) stated.

The taxpayer, Creative Textile Mills Pvt. Ltd. asks, on which foundation the Commissioner of Income Tax (Appeals) has erred in approving the disallowances of Rs.10,09,648/- payment of Provident Fund (PF)/ ESIC under Section 36(1)(va) of Income Tax Act and has also erred in not admiring that the modification incurred through Finance Act, 2021 is forthcoming in nature under the points and circumstances, the addition of Rs.10,09,648/- required to have been removed.

The taxpayer’s counsel acknowledged that the employee’s contribution to PF/ESI deposited post-due date beneath the income tax act would not get permissible as a deduction under Section 36(1)(va) of the Income Tax Act in view of the Supreme Courts decision for the case of Checkmate Services Pvt. Ltd. v. CIT.

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The counsel furnished that according to clause 38 of the Provident Fund Scheme employee’s contribution to the provident fund is needed to get deposited within 15 days from the close of every month.

The Counsel referred to the judgment of the Tribunal’s Co-ordinate Bench (Kolkata) in the case of Kanoi Paper and Industries Ltd ACIT in 1260/Mum/1996.

In the matter of the Commissioner of Income Pressing Ltd., the Madras High Court ruled that the term every month in clause 58 of the Provident Fund Scheme should be interpreted as the month in which the earnings were actually earned, i.e. the salary payable. Because the High Court is higher in the judicial hierarchy than the Tribunal, the ruling of the Madras High Court denied the assessee’s counsel’s request to remand the case to the Assessing Officer (AO).

The appeal was dismissed by a two-bench panel consisting of Om Prakash Kant (Accountant member) and Kavitha Rajagopal (Judicial member).