ITAT Relief: Late EPF/ESIC Okay Before ITR Due Date

The landscape of tax compliance for employers is often fraught with complexity, particularly concerning the timely deposit of statutory dues like the Employees’ Provident Fund (EPF) and Employees’ State Insurance Corporation (ESIC) contributions. A recent ruling by the Income Tax Appellate Tribunal (ITAT), Raipur Bench, in the case of Shree Shivam Attires Pvt. Ltd., has offered a significant, albeit nuanced, reprieve on the issue of belated deposits of the employee’s contribution.

The core of the Tribunal’s decision is that the deduction for the employee’s contribution to EPF and ESIC, even if deposited after the due dates prescribed by the respective welfare statutes (like the EPF Act), will be allowed provided the payment is made before the due date for filing the income tax return under Section 139(1) of the Income Tax Act, 1961.

The Tax Tangle: Section 36(1)(va) vs. Section 43B

To understand the weight of this decision, one must grasp the distinction between the two crucial sections of the Income Tax Act governing these payments:

1. Section 36(1)(va): This section deals specifically with the employee’s contribution (the amount deducted from the employee's salary). It states that the deduction is allowed only if the amount is credited to the employee’s account in the relevant fund by the due date prescribed under the respective welfare laws. The legislative intent here is strict: the employer acts as a trustee for the employee's money, and any delay is viewed seriously.

2. Section 43B: This section covers the employer’s contribution. It is a generally relaxing provision that allows a deduction for certain payments (including the employer's share) if they are made before the due date of filing the income tax return (ITR).

The conflict arises when the employee's share is paid late, missing the statutory due date, but is paid before the ITR filing deadline. The tax authorities, in this case, had disallowed ₹25.81 lakh for the Assessment Year (AY) 2018–19 by invoking the strict provisions of Section 36(1)(va) read with Section 43B, arguing that the welfare law due dates are paramount.

The Elephant in the Room: The Checkmate Ruling

The Revenue’s primary weapon in this dispute was the 2022 Supreme Court judgment in Checkmate Services Pvt. Ltd. This landmark ruling conclusively settled the long-standing debate, holding that there is a clear distinction between the employer's and employee's contributions. The Court affirmed that Section 43B relaxation applies only to the employer’s share, and the employee's share, being an amount held in trust, must be deposited by the statutory due dates to qualify for deduction.

The Chhattisgarh High Court, in the case of BPS Infrastructure v. ITO (2024), had also applied the Checkmate principle, supporting the disallowance.

The ITAT’s Pragmatic View and the 'Debatable' Issue

Facing an order that was remanded by the High Court for a decision on merits, the ITAT Raipur Bench, comprising Arun Khodpia (Accountant Member) and Ravish Sood (Judicial Member), navigated this complex legal environment.

While acknowledging the Supreme Court’s definitive Checkmate position, the Tribunal noted that the assessee's payments, though belated, were not retained indefinitely and were made before the Income Tax Return filing due date.

Crucially, the ITAT decision implicitly, and in line with similar Tribunal rulings for pre-2021 assessment years, relies on the principle that prior to the 2022 Supreme Court judgment (and the 2021 amendments), the issue of late deposit of the employee’s contribution was widely debatable. Many High Courts had previously taken the view that if the payment was made before the ITR due date, the deduction should be allowed.

For the Assessment Year 2018–19, the law was not as clearly settled as it is today. The ITAT’s judgment reflects a pragmatic approach: where the employee’s contribution was remitted to the fund before the ITR due date, the employer should not be penalised with disallowance, especially since the disallowance was initially made through an intimation under Section 143(1), which is generally reserved for clear and non-debatable adjustments.

Conclusion and Takeaway for Businesses

This ITAT order in the case of Shree Shivam Attires Pvt. Ltd. provides essential relief for a specific past period (AY 2018–19) where the legal position was ambiguous.

It’s an important reminder of the legal battles fought over the timing of welfare payments. However, businesses must understand that the law has evolved, and the prevailing, definitive legal position is now one of strict adherence:

• For current and future Assessment Years (AY 2021-22 onwards): Following the Finance Act, 2021 amendments and the Checkmate Supreme Court ruling, the employee’s contribution must be deposited by the due date prescribed under the respective EPF/ESIC laws. Failure to do so will almost certainly result in the disallowance of the deduction.

• For past years (pre-2021): This ITAT decision strengthens the argument that, for years before the law was definitively settled by the Supreme Court, a belated deposit made before the ITR filing date may still qualify for a deduction.

In essence, the Raipur ITAT offered a historical concession, not a precedent for future conduct. The clear message for every employer remains: Deposit all employee contributions within the statutory due date. Do not treat the ITR filing deadline as a safety net for the employee's money.