EPF & ESI Disallowance: Legislative intent was to ensure that the amount when paid is allowed as expenditure

Facts giving rise to the present appeal are that the assessee filed its return of income on 30.11.2018 by declaring income of Rs.3,40,92,139/-. The same was processed by AO/Central Processing Centre (“CPC”), Bangaluru and computed the income at Rs.3,82,74,700/-after making addition/ adjustment of Rs.41,82,565/- on account of disallowance u/s 36(1)(va) of the Income Tax Act, 1961 (“the Act”). The assessee had furnished that the credit of prepaid taxes had not been granted in full. Therefore, CPC, Bangaluru raised a demand of Rs.59,18,456/- instead of granting the refund of Rs.2,34,900/- as claimed by the assessee company in its return of income and made adjustment regarding delay in deposit of employees contribution to EPF & ESI.

Aggrieved against this, the assessee preferred appeal before Ld.CIT(A), who confirmed the addition.

Now, the assessee is in appeal before Income Tax Appellate Tribunal (ITAT).

ITAT Order:

7. We have heard Authorized representatives of both parties and perused the material available on record and gone through the orders of the authorities below. The issue in this appeal is related to disallowance of expenditure on account of delay in deposit of employees contribution related to EPF & ESI. The issue is squarely covered by the judgement of Hon’ble Jurisdictional High Court of Delhi in the case of PCIT vs Pro Interactive Service (India) Pvt.Ltd. in ITA No.983/2018 [Del.] order dated 10.09.2018 held as under:-

“In view of the judgement of the Division Bench of Delhi High Court in Commissioner of Income Tax versus AIMIL Limited, (2010) 321 ITR 508 (Del.) the issue is covered against the Revenue and, therefore, no substantial question of law arises for consideration in this appeal.

The legislative intent was/is to ensure that the amount paid is allowed as an expenditure only when payment is actually made. We do not think that the legislative intent and objective is to treat belated payment of Employee’s Provident Fund (EPF) and Employee’s State Insurance Scheme (ESI) as deemed income of the employer under section 2(23)(x) of the Act.”

Therefore, respectfully following the ratio laid down by the Hon’ble Jurisdictional High Court in the above-mentioned binding precedent, we hereby direct the Assessing Officer to delete the disallowance. Thus, grounds raised by the assessee are allowed.

8. In the result, the appeal of the assessee is allowed.

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