Deduction can’t be claimed when there is a Delay in Payment of Employee’s Contribution to PF and ESI: ITAT confirms Addition u/s 2(24)(x) [Read Order]

The Chennai bench of the Income Tax Appellate Tribunal (ITAT) confirmed the addition under Section 2(24)(x) of the Income Tax Act, 1961 and held that the deduction cannot be claimed when there is a delay in the payment of the employee’s contribution to Provident Fund (PF) and Employee State Insurance (ESI). The assessee, O Software Pvt. Ltd., filed its return of income admitting a total income at ₹.14,17,790/-.

The Income Tax Department Centralized Processing Centre (CPC), Bengaluru has completed the assessment under section 143(1) of the Income Tax Act and made disallowance of ₹.1,57,008/- for belated payment of PF/ESI. On appeal, after considering the submissions of the assessee, the Commissioner of Income Tax (Appeal) [CIT(A)] confirmed the disallowance.

The counsel submitted that the assessee company has remitted the payment towards the employee’s contribution of EPF before the due date of filing of return and also submitted that the issue is squarely covered in favour of the assessee and prayed for allowing the deduction. In the case of M/s. Checkmate Services P. Ltd. v. CIT, the Supreme Court has considered the issue of disallowance of belated remittances of employee’s contribution to PF & ESI under Section 36(1)(va) read with Section 2(24)(x) of the Income Tax Act, and after considering relevant provisions and also by relying upon various judicial precedents held that to get deduction under Section 36(1)(va) read with Section 43B of the Income Tax Act, timely payment of employee’s contribution to PF & ESI is necessary and in case, there is a delay in remittance of such contribution to respective funds, then, the assessee is not entitled to a deduction and further said sum is the income of the assessee in terms of Section 2(24)(x) of the Income Tax Act.

The Two-member bench comprising of V. Durga Rao (Judicial member) and G. Manjunatha (Accountant member) held that there was no error in the reasons given by the CIT(A) to sustain the addition made towards disallowance of the employee’s contribution to PF & ESI under Section 36(1)(va) read with Section 2(24)(x) of the Income Tax Act, and thus, the order of the CIT(A) was upheld and the appeal filed by the assessee was dismissed.

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