Manikjeet Singh Kals vs. ADIT, CPC Bengaluru
Bench: Delhi ‘E’ Bench — Shri Pradip Kumar Kedia (AM), Shri Yogesh Kumar U.S. (JM)
ITA Nos.: 4295/Del/2024 (AY 2019–20) & 4296/Del/2024 (AY 2021–22)
Date of Order: 27 February 2025
Background
The assessee, Manikjeet Singh Kals, filed two appeals against CIT(A) orders upholding adjustments made by the AO/CPC under Section 154 pertaining to:
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Disallowance of employees’ contribution to ESI and PF:
Alleged late deposit of employee’s share beyond the statutory due date. -
TDS Credit Mismatch:
Arising from non-grant of credit for TDS reflected in Form 26AS.
Key Contentions
Assessee’s Arguments:
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Natural Justice:
The CIT(A) passed orders without proper consideration of submissions and evidence. -
Actual Payment Dates:
All employee contributions were paid within the ‘due date’ as prescribed under the respective EPF and ESI Acts. -
Chart Provided:
Payment and due dates chart clearly disproved need for any disallowance. -
Remand Requested:
Sought remand for factual verification by the AO.
Revenue’s Argument:
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SC Decision – Checkmate Services (2022):
The Supreme Court’s decision held that employee contributions paid beyond the due date prescribed by the respective statutes are not allowable as deduction (Section 36(1)(va)). -
Disallowance Supported:
Therefore, any late payment, even if deposited before filing the return, must be disallowed.
Tribunal’s Observations & Reasoning
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Legal Principle Settled:
The principle that late payment of employee contributions is not allowable as a deduction has been settled by the Supreme Court in the Checkmate Services Pvt. Ltd. v. CIT case, making such contributions inadmissible if not paid by the statutory due date. -
What is the ‘Due Date’?
There was a genuine factual dispute about what constitutes the ‘due date’ for PF/ESI deposit:-
Assessee’s stand: Due date counts from the month in which salary is actually paid, not the month to which salary relates.
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Revenue’s stand: Due date is linked to the month salary is earned (accrual).
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Relevant Judicial Precedents:
Cited cases such as Master Polishers v. ADIT (ITAT Mumbai) and Konai Paper (Calcutta ITAT) which held that due date for deposit can be reckoned from the month of actual salary disbursal. -
Remand Appropriate:
The Tribunal observed another coordinate bench (Rakesh Janghu v. DCIT, ITA No. 379/Del/2023) had, in similar circumstances, remanded the matter to the AO to verify the ‘due date’ in the light of relevant Acts and provide the assessee an opportunity to be heard.
Directions and Outcome
1. ESI/PF Disallowance:
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The Tribunal restored the issue back to the AO for:
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Verification of the statutory due date under the relevant Act (PF/ESI authorities may be consulted).
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Factual comparison of actual payment dates vis-à-vis due dates.
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Proper application of the Supreme Court and Tribunal precedents.
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Allowing the assessee adequate opportunity to substantiate the claim.
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2. TDS Credit Mismatch:
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The Tribunal remanded the issue of TDS credit mismatch back to the AO with direction to:
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Verify TDS as per Form 26AS and other records.
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Allow due credit after providing a hearing to the assessee.
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Result:
The appeals were partly allowed for statistical purposes (i.e., not decided on merits, but open for fresh AO adjudication).
Key Takeaways
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Disallowance of ESI/PF employee contributions is permitted only if not deposited by the statutory due date—not merely by the return filing date.
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There can exist genuine disputes on how to compute the due date; whether from accrual or actual payment of wages.
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The AO must verify facts carefully and give the assessee a full opportunity to present evidence.
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TDS credits must be correctly matched as per Form 26AS—any mismatch should be resolved after hearing the assessee.
Conclusion
This decision reinforces the supremacy of the Supreme Court in Checkmate Services on the treatment of delayed employee contribution deposits. However, it also underlines the Tribunal’s pro-taxpayer approach in ensuring that disputes over ‘due date’ calculations and TDS credit mismatches are resolved only after a full and fair factual verification.
In all such cases involving Section 36(1)(va), both parties must prepare for granular fact-checking on a wage-by-wage, month-by-month basis, aligning with the actual statutory wording and established case law.