ITAT: Claim of Deduction Towards Employee’s Contribution to PF and ESI by Taxpayer Is Not Allowed

ITAT: Claim of Deduction Towards Employee’s Contribution to PF and ESI by Taxpayer Is Not Allowed

The Income Tax Appellate Tribunal (ITAT), Mumbai bench ruled that the claim of deduction towards employee’s contribution to Provident Fund (PF) and Employee State Insurance Scheme (ESI) made by the taxpayer is an incorrect claim warranting prima facie adjustment under section 143(1) of the Act.

The division member bench comprising of Justice Sandeep Singh Karhail (Judicial Member) and Om Prakash Kant (Accountant Member) while referring on the Supreme decision in the case of Checkmate Services (P.) Ltd. vs Commissioner of Income Tax, [2022] observed that, the non-obstante clause under Section 43B of Income Tax Act, 1961 (the Act) 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 the deduction.

In the present case, Deutsche India Pvt. Ltd. (Earlier Known as DBOI Global Service Private Limited)- appellant/assessee had filed its return of income on 10th February, 2021, declaring a total income of Rs.459,03,58,100. The return was processed after an addition of Rs. 6,30,42,740 was made on account of delayed payment towards the employee’s contribution to the provident fund under Section 36(1)(va).

The Commissioner of Income Tax (Appeals) (CIT[A]) while dismissing the appeal filed by the assessee observed, if the employer fails to deposit the entire amount towards the employees' contribution on account of the provident fund with the concerned department on or before the due date, the assessee is not entitled to a deduction.

The ITAT noted that the employee’s contribution to the provident fund was deposited by the assessee after the due date prescribed under the relevant statute but within the due date of filing the income tax return in accordance with section 139(1) of the Act.

The ITAT found that in Nissan Enterprise Ltd. vs DCIT-CPC, the Tribunal vide order dated 17th February, 2023, after considering the aforesaid decision in P.R. Packaging Service vs ACIT, held that pursuant to the decision of the Hon’ble Supreme Court in Checkmate Services (P.) Ltd. (supra), the claim of deduction towards employee’s contribution to PF & ESI made by the taxpayer becomes an incorrect claim warranting prima facie adjustment under section 143(1) of the Act.

“Therefore, respectfully following the decision of the Hon’ble Supreme Court in Checkmate Services (P.) Ltd. (supra), we find no infirmity in the impugned order passed by the learned CIT(A). As a result, ground No. 1 raised in assessee’s appeal is dismissed,” observed the bench.

Further, the bench noted that the issue arising in ground no.2, pertained to levy of interest under section 234C of the Act, which was consequential in nature. In the result, the appeal by the assessee was dismissed.