EPF & ESI Deposit Due Date Tied to Actual Salary Disbursement Month — ITAT Delhi Remands Matter in Benson Movers Pvt. Ltd. Vs ACIT

Overview of the Case

The Income Tax Appellate Tribunal (ITAT), Delhi Bench, recently adjudicated an appeal filed by Benson Movers Pvt. Ltd. against the order passed by the Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi, dated 20.10.2022, pertaining to Assessment Year 2019-20.

At the center of this dispute was a significant disallowance of Rs. 1,18,48,520 — representing employees' contributions to the Employees' Provident Fund (EPF) and Employees' State Insurance (ESI) — made by the Central Processing Centre (CPC) while processing the assessee's income tax return under Section 143(1) of the Income Tax Act, 1961. Additionally, interest was levied under Section 234A, Section 234B, and Section 234C of the Act.

The core legal question that emerged from this appeal was both practically significant and frequently litigated: should the due date for depositing employees' contributions to PF and ESI be reckoned from the calendar month for which the salary is payable, or from the month in which the salary is actually disbursed to the employees?

Background and Factual Matrix

The CPC, Bengaluru, initiated an adjustment under Section 143(1) by disallowing the employees' share of EPF and ESI contributions amounting to Rs. 1,18,48,520, on the ground that the contributions were deposited beyond the prescribed due dates. Before effecting this adjustment, the CPC had issued an electronic intimation to the assessee seeking a response.

When the assessee contested this disallowance before the CIT(A)/NFAC, the appellate authority upheld the CPC's action, placing heavy reliance on the landmark judgment of the Hon'ble Supreme Court in Checkmate Pvt. Ltd. vs. CIT (2022) 143 taxmann.com 178 (SC), which had conclusively held that belated deposits of employees' contributions to PF/ESI are not deductible under Section 36(1)(va) of the Income Tax Act, 1961.

Aggrieved by the CIT(A)'s order, the assessee approached the ITAT Delhi, raising the following substantive grounds of appeal:

  1. The CIT(A)/NFAC erred in confirming the addition of Rs. 1,18,48,520 made under Section 143(1) on illegal and untenable grounds.
  2. The CIT(A) ought to have quashed the order passed under Section 143(1) since jurisdiction was not validly assumed as per law.
  3. The CIT(A) erred in confirming the disallowance without appreciating the principles of natural justice and the latest legal position.
  4. The confirmation of the aggregate addition of Rs. 1,18,48,520 on account of employees' contribution to ESI and EPF was bad in law and factually unsustainable.
  5. The CIT(A) erred in confirming the levy of interest under Section 234A, Section 234B, and Section 234C of the Income Tax Act, 1961.

Arguments Advanced on Behalf of the Assessee

Before the Tribunal, counsel for the assessee put forth a pointed legal argument: the "month" relevant for computing the delay in depositing employees' PF and ESI contributions should be the month in which salary or wages are actually disbursed by the employer, and not the calendar month for which the salary liability accrues.