Facts of the Case

The assessee had deposited employees’ contribution towards Provident Fund (PF) and Employees’ State Insurance (ESI) after the due dates prescribed under the respective welfare statutes but before the due date of filing the income-tax return under Section 139(1) of the Income-tax Act. The Assessing Officer disallowed the amount on the ground that the payments were not made within the statutory due dates under the PF/ESI Acts. The disallowance was upheld by the first appellate authority.

Issues Involved

Whether employees’ contribution to PF and ESI deposited after the due dates under the respective Acts but before the due date of filing the return under Section 139(1) is allowable as deduction under the Income-tax Act

Petitioner’s Arguments

The assessee contended that the contributions, though delayed under the welfare statutes, were paid before the due date of filing the return of income. Therefore, the payments should be allowed as deduction in view of judicial precedents interpreting Sections 36(1)(va) and 43B harmoniously. It was argued that no disallowance is warranted when the payment reaches the statutory funds prior to return filing.

Respondent’s Arguments

The Revenue argued that employees’ contribution is governed by Section 36(1)(va), which requires payment within the due date prescribed under the relevant welfare laws. Since the assessee failed to comply with those statutory due dates, the deduction was rightly disallowed irrespective of payment before the return filing date.

Court Order / Findings

The Tribunal observed that although the payments were made beyond the due dates specified in the PF and ESI Acts, they were admittedly deposited before the due date of filing the return under Section 139(1). Considering the judicial position prevailing at the relevant time, the Tribunal held that such payments are allowable deductions. Accordingly, the disallowance made by the Assessing Officer was deleted.

Important Clarification

The Tribunal emphasized that the decisive factor was the actual deposit of the employees’ contribution before the due date of filing the return of income. Thus, for the assessment year under consideration, the deduction could not be denied merely because the payment was delayed under the respective labour welfare statutes.

Link to download the order –

https://itat.gov.in/public/files/upload/1651732203-ITA%20No.%2022%20Alld%202021%20Vikarma%20Sharma.pdf

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