Payment Made on First Working Day Post Bank Holiday

Payment Made on First Working Day Post Bank Holiday Entitles Trust/Company to Employee PF/ESI Deduction

Issue

Whether an Assessing Officer can disallow employee PF/ESI contributions under Section 36(1)(va) when the payment delay was solely due to bank holidays (Saturday and Sunday) and the amount was cleared on the immediate next working day.

Facts

Assessee Claim: For Assessment Year 2020-21, the assessee-company claimed deductions under Section 36(1)(va) for employees’ contributions towards Provident Fund (PF) and Employee State Insurance (ESI).
Disallowance by AO: The Assessing Officer (AO) disallowed the claimed deductions on the grounds of delayed deposit.
Reason for Delay: Two specific PF contribution payments—amounting to Rs. 34.71 lakhs and Rs. 9.85 lakhs—were deposited on 17-06-2019 because 15-06-2019 and 16-06-2019 were official bank holidays (Saturday and Sunday).
Bank Clearance: The bank processed and cleared the transaction on 17-06-2019, the very first working day following the bank weekend.
Absence of Default: There was no intentional delay or default on the part of the assessee in tendering the payments.

Decision

Illegal Disallowance: The action of the Assessing Officer in disallowing the deduction under Section 36(1)(va) was illegal and unsustainable under the law.
Setting Aside AO Order: The disallowance made by the AO in respect of the PF/ESI contributions was set aside.
Verdict: Decided in favor of the assessee.

Key Takeaways

General Clauses Act / Holiday Rules: When the statutory due date falls on a public or bank holiday, a payment deposited on the immediately following working day is legally treated as deposited within time.
Lack of Intentional Failure: Technical delays arising purely from banking closures/holidays cannot be treated as a default by the assessee to invoke disallowance under Section 36(1)(va).

IN THE ITAT DELHI BENCH ‘I’

Metso Outotec India (P.) Ltd.

Deputy Commissioner of Income-tax

Vimal Kumar, Judicial Member
and M. Balaganesh, Accountant Member

IT Appeal No. 4301 (Delhi) of 2024
[Assessment year 2020-21]

SEPTEMBER 10, 2026

Ms. Taranjeet Kaur, AR and Vishal Kalra, Adv. for the Appellant. Sh. Mahesh Kumar, CIT(DR) for the Respondent.

ORDER

Vimal Kumar, Judicial Member. – The appeal filed by the appellant/assessee is against assessment order dated 26.07.2024 of Ld. Assessing Officer/ Assessment Unit (hereinafter referred to as “the AO”) u/s 143(3) r.w.s. 144C(13) r.w.s. 144B of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) for A.Y. 2020-21.

2. Brief facts of the case are that the company filed return of income on 05.01.2021 declaring a total income of Rs. 1,83,01,36,530/-. Revised return of income was filed by the assessee on 09.03.2021 declaring a total income of Rs. 1,83,01,36,530/-. Revised return of income was selected for scrutiny under CASS for following reasons:

Increase in TDS/TCS claim in the revised return

International transaction(s) in respect of intangible property (TP Risk Parameter)

Large difference in the opening stock of current year (in Trading & Manufacturing account) and closing stock of previous year (in Trading & Manufacturing account as per Return of Income)

High risk International Transactions (Entity reported in CbCR data) (TP Risk Parameter)

Taxable receipts from Other Sources shown in Schedule TDS2 is higher than the receipts shown in ITR

Reduction in profit because of application of Income Computation & Disclosure Standards.

2.1 Notice u/s 143(2) of the Act dated 29.06.2021. Notice u/s 142(1) dated 31.01.2022, 21.07.2023, 17.08.2023 and 29.08.2023 were issued. The assessee filed submissions electronically and submitted documents. A reference u/s 92CA (1) of the Act was made to Transfer Pricing Officer (‘T.P.O.’) for determination of arm’s length price in respect of the international transactions entered into by the assessee with its associated enterprises as reported in Form 3CEB filed by the assessee. The TPO vide order dated 30.07.2023 u/s 92CA(3) of the Act made total adjustment in respect of international transaction and specified demonstrated transfer of Rs. 81,28,35,399/-.

3. Ld. AO vide order dated 25.09.2023 made draft assessment order u/s 144C(1) of the Act.

4. Against draft assessment order dated 25.09.2023, the assessee filed objections on 23.10.2023 which were decided vide order dated 30.06.2024. As per directions of DRP, ld. AO passed assessment order dated 26.07.2024.

5. Being aggrieved, the appellant/assessee preferred present appeal on following grounds:

“1. That on the facts and circumstances of the case and in law, the AO has erred in assessing the total Income of the Appellant at INR 2,64,74,62,789, in pursuance to the directions issued by the DRP, as against the returned income of INR 1,83,01,36,530.

2. That on the facts and circumstances of the case and in law, the AO has erred in not considering the revised adjustment of INR 81,24,82,463 proposed by the TPO in the appeal effect order dated July 25, 2024 and erroneously considering the adjustment of INR 81,28,35,399 for computing the assessed income.

3. That on the facts and circumstances of the case and in law, the final assessment order dated July 26, 2024 passed by the AO is barred by limitation and thus, bad in law and liable to be quashed, as it has been passed beyond the time frame prescribed under section 153(1) read with section 153(4) of the Act.

4. That on the facts and in the circumstances of the case and in law, the order dated July 26, 2024 passed under section 143(3) read with section 144C(13) and 144B of the Act is bad in law, without jurisdiction and thus, liable to be quashed.

5. That on facts and circumstances of the case and in law, the directions issued by DRP are bad in law, void ab initio and liable to be quashed as the same have been passed in violation of the provisions of sub-section (8) to section 144C of the Act.

6. That on the facts and in the circumstances of the case and in law, the AO has erred in making a reference to the Transfer Pricing Officer (“TPO”) by not appreciating that such a reference suffers from jurisdictional error as no reasons have been recorded in the assessment order based on which he reached the conclusion that it was ‘necessary or expedient’ to refer the matter to the TPO for computation of the arm’s length price (“ALP”), as is required under section 92CA(1) of the Act.

7. That on the facts and circumstances of the case and in law, the TPO has erred in not discharging the statutory onus of establishing that the conditior.s specified in clauses (a) to (d) of section 92C(3) of Act are satisfied in Appellant’s case, before disregarding the arm’s length price determined by the Appellant. The AO/DRP further erred in upholding the action of the TPO.

8. That on the facts and circumstances of the case and in law, the AO/DRP/TPO has erred in re-determining the arm’s length price (“ALP”) of the international transactions of the Appellant by arbitrarily rejecting the segmental accounts maintained by the Appellant and adopting an entity level approach.

9 Transfer Pricing (“TP”) adjustment amounting to INR 2,22,68,088 in respect of the international transactions pertaining to provision of business support services:

9.1. That on the facts and in the circumstances of the case and in law, the AO/DRP/ TPO have erred in making the transfer pricing adjustment of INR 2,22,68,088 to the international transactions pertaining to provision of business support services to its Associated Enterprises (“AEs”), alleging the same to be not at arm’s length.

9.2. That on the facts and circumstances of the case and in law, the AO/DRP/TPO have erred in holding that the international transactions pertaining to provision of business support services do not satisfy the arm’s length principle envisaged under the Act; and in doing so have grossly erred in rejecting the ALP as determined by the Appellant in the transfer pricing documentation maintained by it in terms of section 92D of the Act and Rule 10D of the Income tax Rule, 1972 (‘Rules’).

9.3. That on the facts and circumstances of the case and in law, the AO/ DRP / TPO have erred in modifying, based on his subjective grounds and presumptions, the comparability analysis conducted by the Appellant for determining the arm’s length price in terms of section 92D of the Act read with Rule 100 of the Rules.

9.4. That on the facts and circumstances of the case and in law, the TPO has erred in not appreciating the filters applied by the Appellant for benchmarking the international transaction pertaining to provision of business support services and consequently, erred in modifying the filters and applying additional quantitative filters not applicable to the functional profile of the Appellant. The AO/ DRP have further erred in upholding the action of the TPO.

9.5. That on the facts and circumstances of the case and in law, the AO/DRP/TPO have erred in arbitrarily rejecting functionally comparable companies selected by the Appellant for the purpose of benchmarking the subject international transaction and further erred in arbitrarily selecting functionally incomparable companies on the basis of arbitrary search filters and incorrect application of functional, asset and risk profile of the Appellant.

9.6. That on the facts and circumstances of the case and in law, the AO/ DRP/TPO have erred in not allowing economic adjustment for difference in working capital vis-a-vis the comparable companies on arbitrary reasons without appreciating the submissions and evidence furnished in this regard.

9.7. Without prejudice to the above grounds, that on the facts and circumstances of the case and in law, the AO/ DRP/ TPO have erred in not considering the revised transfer pricing adjustment of INR 2,19,15,152, as per the order giving effect passed by the TPO pursuant to directions of the DRP, and incorrectly considering the adjustment of INR 2,22,68,088 in respect of international transaction pertaining to provision of business support services,

10. TP adjustment amounting to INR 1.29.20.006 in respect of the International transactions pertaining to provision of contract research & development services:

10.1. That on the facts and in the circumstances of the case and in law, the AO/DRP/TPO have erred in making the transfer pricing adjustment of INR 1.29.28.886 to the International transactions pertaining to provision of contract research & development services to its AEs, alleging the same to be not at

10.2. That on the facts and circumstances of the case and in law, the AO/DRP/TPO have erred in making an adjustment for the international transactions pertaining to provision of contract research & development services and in doing so have grossly erred in rejecting the ALP as determined by the Appellant in the transfer pricing documentation maintained by it in terms of section 92D of the Act and Rule 100 of the Rules.

10.3. That on the facts and circumstances of the case and in law, the AO/DRP/TPO erred in modifying. based on his subjective grounds and presumptions, the comparability analysis conducted by the Appellant for determining the arm’s length price in terms of section 92D of the Act read with Rule 10D of the Rules.

10.4. That on the facts and circumstances of the case and in law, the TPO has erred in not appreciating the filters applied by the Appellant for benchmarking the international transaction pertaining to provision of contract research & development services and consequently, erred in modifying the filters and applying additional quantitative filters not applicable to the functional profile of the Appellant. The AO/ DRP have further erred in upholding the action of the TPO.

10.5. That on the facts and circumstances of the case and in law, the AO/DRP/TPO have erred in arbitrarily rejecting functionally comparable companies selected by the Appellant for the purpose of benchmarking the subject international transaction and further erred in arbitrarily selecting functionally incomparable companies on the basis of arbitrary search filters and incorrect appreciation of functional, asset and risk profile of the Appellant.

10.6. That on the facts and circumstances of the case and in law, the AO/ DRP/ TPO have erred in not allowing economic adjustment for difference in working capital vis-a-vis the comparable companies on arbitrary reasons without appreciating the submissions and evidence furnished in this regard,

11. TP adjustment amounting to INR 39,43,57,079 in respect of the international transactions pertaining to international transaction pertaining to payment of royalty:

11.1. That on the facts and in the circumstances of the case and in law, the AO/ DRP/ TPO have erred in making the transfer pricing adjustment of INR 39,43,57,079 to the international transactions pertaining to payment of royalty, alleging the same to be not at arm’s length.

11.2. That on the facts and circumstances of the case and in law, the AO/ DRP/ TPO have erred in disregarding the ALP as determined by the Appellant in the transfer pricing documentation maintained by it in terms of section 92D of the Act and Rule 10D of the Rules on an arbitrary basis without providing any cogent reasoning.

11.3. That on the facts and circumstances of the case and in law, the AO/DRP/TPO erred in not appreciating that the Appellant has received beneficial technical-know how from the AEs.

11.4. That on the facts and circumstances of the case and in law, the AO/DRP/TPO erred in challenging the commercial wisdom of the Appellant in making such payments for necessary business existence.

11.5. That on the facts and circumstances of the case and in law, the AO/ DRP/ TPO have erred in benchmarking the international transaction of payment of royalty with royalty agreements which are functionally different/ incomparable.

11.6. That on the facts and circumstances of the case and in law, the AO/DRP/TPO have erred in excluding certain comparable royalty agreements considered by the Appellant in the TP documentation on arbitrary/frivolous grounds.

11.7. That on the facts and circumstances of the case and in law, the AO/DRP/TPO have erred in making TP adjustment in respect of the intamational transaction pertaining to payment of royalty, despite the fact that such payment was made by Appellant in the earlier years also and the same was duly accepted by AO/TPO in those earlier years.

11.8. Without prejudice to the above, the AO/DRP/TPO have erred in not appreciating that if application of Transactional Net Margin Method (“TNMM”) is accepted in Appellant’s case as the most appropriate method, then, challenging/ analysing individual elements of cost i.e. royalty expense is inconsistent with the tenets of the application of TNMM.

12. TP adjustment amounting to INR 38,32,81,346 in respect of the international transactions pertaining to availing of management services and technical support services;

12.1. That on the facts and in the circumstances of the case and in law, the AO/ DRP/ TPO have erred in making the transfer pricing adjustment of INR 38,32,81,346 to the international transaction pertaining to payment for management services and technical support services its AEs.

12.2. That on the facts and in the circumstances of the case and in law, the AO/ DRP/TPO have erred in making the TP adjustment in respect of the international transaction pertaining to payments made to its AEs for receipt of management services and technical support services, alleging the same to be not at arm’s length, and consequently, determining the ALP as ‘Nil’.

12.3. That on the facts and circumstances of the case and in law, the AO/DRP/TPO have erred in rejecting the benchmarking analysis and methodology adopted by the Appellant, wherein TNMM has been adopted as the most appropriate method (“MAM”) for benchmarking the subject international transactions.

12.4. That on the facts and circumstances of the case and in law, the AO/ DRP/ TPO have erred in determining the ALP of the subject international transactions as ‘Nil’ by applying Comparable Uncontrolled Price (“CUP”) Method, which is not in accordance with the prescribed methodology under the Act.

12.5. That on the facts and circumstances of the case and in law, the AO/ DRP/TPO have erred in making the TP adjustment in respect of the international transaction of receipt of management services and technical support services, alleging that the Appellant has failed to maintain records to establish receipt of services, need for services and benefit received therefrom, ignoring the submissions and documentary evidences furnished by the Appellant.

12.6. That on the facts and circumstances of the case and in law, the AO/DRP/TPO have erred in making TP adjustment in respect of the international transaction pertaining to avalling of management services and technical support services, despite the fact that such services were availed by Appellant in the earlier years also and the same was duly accepted by AO/TPO in those earlier years.

12.7. That on the facts and circumstances of the case and in law, the AO/DRP/TPO erred in making the TP adjustment in respect of the international transaction pertaining to payment of intra group services, alleging that the Appellant had failed to demonstrate the receipt of services, necessity for availing such services and the benefits realized thereof, thereby challenging the commercial wisdom of the Appellant in making such payments while passing the order in contrast with the judicial pronouncements in this regard.

12.8. That on the facts and circumstances of the case and in law, the AO/ DRP/TPO have erred in alleging that the services received by the Appellant from its AE’s falls within the premise of shareholder functions or stewardship services and do not require a separate payment.

12.9. Without prejudice to the other grounds, that on the facts and circumstances of the case and in law, the AO/TPO/ DRP have erred in not appreciating that the technical support services availed by the Appellant, backed by documentary evidences and also satisfying the need and benefit test, are not in the nature of routine intra group services and therefore, the arm’s length price in respect of the international transactions pertaining to availing of technical services cannot be determined at Nil.

13. Addition amounting to INR 44,90,860 under section 36 of the Act:

13.1. That on the facts and circumstances of the case and in law, the AO has erred in not allowing the deduction in respect of contribution received from employees for Provident Fund and Employee State Insurance under section 36 of the Act.

14. That on the facts and in the circumstances of the case and in law, the AO has erred in arriving at an incorrect demand of INR 31,05,99,690.

15. That on the facts and circumstances of the case and in law, the AO has erred in initiating penalty proceedings under section 270A of the Act.”

6. Ld. Authorized Representative for appellant/assessee submitted application dated 11.05.2026 that ground of appeal No. 1 is general in nature. Through application dated 11.05.2026, appellant requested from complete withdrawal of ground of appeal No. 2, 6 to 12 involving transfer pricing which were covered by advanced pricing agreement with the central board of directed taxes on 31^st March, 2026 have been withdrawn. Ground of Appeal No. 13 is regarding addition amounting to Rs. 44,90,860/- u/s 36 of the Act. Ld. AO erred in not allowing the deduction in respect of contribution received from employees for Provident Fund and Employee State Insurance u/s 36 of the Act. The delay in two payments of PF Employee’s contribution is as follows:

??	Dt 17.06.2019	Rs 34,71,191/-
??	Dt 17.06.2019	Rs. 9,85,159/-

(ii) The new provision of section 36(1) (va) is to be enacted from 01.04.2021 (Finance Act 2021). Whereas our case and disclosure of income/deductions is concerned belongs to the FY 2019-20 relevant to AY 2020-2021. The assessee had already filed its ITR much before the enactment of the new provision of section 36 (1) (va) of the 1. Tax Act 1961.

In the new provision of section 36(1) (va) -Explanation 2 -It says

“For the removal of doubt, it is hereby clarified that the provision of Section 43 B shall not apply and shall be deemed never to have been applied for the purposes of determining the due date under this clause” [Finance Act 2021 w.e.f. 01.04.2021/

Meaning thereby the change in the provisions of the law can never be retrospective, rather it should always be prospective. It means that the said law will be applicable from 01.04.2021, for AY 2022-2023 and not from AY 20202021 in the case of the assessee.

Therefore, in our case, the delay of payments in PF is very covered under section 43B of the Act and as per the records the said payments were made very much before the due date of filing of ITR as per section 43B.

(iii) Without prejudice to the above, it is to bring into your kind knowledge that the said delay was not in the hands of the assessee company, reason being, 15th June 2019 & 16th June 2019 was Saturday & Sunday being the bank holidays and respectively the next working day 17th June 2019 the clearance was made by the bank and the amount was deposited in to PF authority accordingly. There was no intentional delay by the assessee company.”

7. Ld. Departmental Representative relied on impugned order.

8. From examination of record in light of aforesaid rival contention, it is crystal clear that two payments of PF employee’s contribution amounting to Rs. 34,71,191/- and Rs. 9,85,159/- dated 17.06.2019 were delayed because of the effect on 15.06.2019 and 16.06.2019 were bank holidays on account of Saturday and Sunday. The clearance was made by the bank on 17.06.2019. So, there was no intentional delay on part of assessee company. Therefore, the action of ld. AO in not allowing deduction in respect of contributions for PF and Employee State Insurance u/s 36 of the Act being illegal, is set aside. Ground No. 13 is accepted.

9. Ground of appeal No. 14 and 15 being consequential are left open.

10. In the result, the appeal of the assessee is allowed.