Delayed PF/ESI Deposits Can Be Disallowed During ITR Processing, Holds ITAT

The ITAT Delhi Bench has delivered a significant ruling in the case of Cico Technologies Limited, clarifying that delayed deposit of employees’ Provident Fund (PF) and Employees’ State Insurance (ESI) contributions can be disallowed while processing the ITR under Section 143(1) of the Income Tax Act. Accordingly, the disallowance of the delayed PF/ESI contributions was sustained.

The assessee, Cico Technologies Limited, had declared an income of Rs 49.07 lakh under normal provisions of the Income Tax Act and Rs 59.79 lakh under the provisions of Section 115JB of the Act. The Assessing Officer (AO) processed the assessee’s return under section 143(1) of the Act, determining the total income of Rs 77.14 lakh. The adjustment was made as an addition to the assessee’s income on the grounds of lately paying employees’ contribution towards PF/ESI beyond the prescribed due dates under the respective welfare laws.

The assessee contended that this type of adjustment cannot be made under the provisions of Section 143(1) because the issue was debatable at the relevant time. When the matter was taken before the Income Tax Appellate Tribunal (ITAT) Delhi. When the case was deeply examined, it was noted that the legal position now stands settled by a judgement of the Supreme Court of India in a case titled Checkmate Services Private Limited. v. CIT, which clarified that employees’ contributions deposited after the statutory time limit are not admisible as deductions under Section 36(1)(va), even if paid before filing the income tax return.

The tribunal cited an earlier Delhi High Court ruling in Woodland (Aero Club) Private Limited v. ACIT, which clarified that CPC was capable of making such disallowances under Section 143(1), as the Gujarat High Court’s decision on the issue already existed when the intimation was processed.

Since the delayed payments were clearly reported in the tax audit report, the Tribunal held that the CPC had rightly made the adjustment while processing the return. Accordingly, it dismissed all the grounds raised by the assessee and upheld the impugned disallowance of the delayed PF/ESI contributions.

The tribunal held that “the assessee has deposited the employees’ contribution towards PF/ESI into the accounts of respective funds, beyond the prescribed due dates, the same is disallowable u/s 36(1)(va) r.w section 2(24)(x) of the Act and can be validly done while processing the return u/s 143(1) of the Act. Ground No.1 to 3 are accordingly dismissed.”