Wrong PF/ESI Dates Reported: ITAT Directs AO to Verify Late Payments

The Chandigarh Bench of the Income Tax Appellate Tribunal (ITAT) recently dealt with a case where wrong reporting of PF/ESI deposit dates by a tax auditor caused an inflated disallowance. The Tribunal emphasized that only genuine late payments should be disallowed, not those wrongly shown as delayed due to audit errors.

Case Background

• The case involved M/s Sunrise Facilitators Pvt. Ltd. for AY 2019–20.

• The CPC issued an intimation under Section 143(1) of the Income Tax Act, 1961, disallowing employees’ PF/ESI contributions worth ₹161.54 lakhs.

• This was based on the auditor’s report under Section 36(1)(va) read with Section 2(24)(x).

• The CIT(A) upheld the disallowance, relying on the Finance Act, 2021 clarification.

Assessee’s Stand

The assessee argued that the auditor incorrectly reported payment dates, showing many timely deposits as delayed.

• Out of ₹161.54 lakhs disallowed, only ₹58.58 lakhs related to genuinely late payments.

• The assessee submitted challans and detailed records before the Tribunal to prove compliance.

Tribunal’s Findings

The Bench of Laliet Kumar (JM) and Manoj Kumar Agarwal (AM) made two key observations:

1. Law is settled – The Supreme Court in Checkmate Services Pvt. Ltd. v. CIT (2022) confirmed that employees’ PF/ESI contributions must be deposited within due dates.

2. Errors need correction – While the law is strict, the auditor’s misreporting had unfairly inflated disallowance.

The ITAT directed the AO to re-check payment records and disallow only the amount relating to actual late deposits.

Key Takeaways

• Tax audit reporting errors can create serious financial impact.

• Businesses should always retain challans and proof of timely payments.

• ITAT ensured fairness by restricting disallowance only to genuine defaults.

FAQs

1. Why was disallowance made in this case?
Because the auditor reported wrong PF/ESI deposit dates, making timely payments appear late.

2. How much of the amount was actually delayed?
Out of ₹161.54 lakhs disallowed, only ₹58.58 lakhs were genuine delays.

3. What did ITAT order the AO to do?
The AO was told to verify payment records and restrict disallowance only to actual late payments.

4. Why is the Checkmate Services ruling relevant?
It clarified that employees’ contributions must be deposited within due dates, regardless of employer’s compliance.

Conclusion

This ruling highlights the importance of accuracy in audit reports. While tax laws are clear about PF/ESI due dates, businesses must not be penalized for mistakes made in reporting. By directing the AO to verify records, the ITAT ensured that only genuine defaults are punished, upholding both the law and the principles of natural justice.