Facts of the Case

The assessee, a private limited company engaged in automobile business, filed its return of income declaring income under normal provisions. The return was processed under Section 143(1) by the Centralized Processing Centre (CPC), Bengaluru.During processing, the CPC made an adjustment disallowing employees’ contributions to Provident Fund (PF) and Employees’ State Insurance (ESI) on the ground that such payments were not deposited within the due dates prescribed under the respective welfare statutes. The amount was treated as income under Section 2(24)(x) read with Section 36(1)(va).The assessee contended that although the payments were made after the statutory due dates under PF/ESI laws, they were deposited before the due date for filing the return under Section 139(1). The CIT(A) upheld the disallowance. The assessee appealed before the ITAT.

 Issues Involved

  1. Whether employees’ PF/ESI contributions paid after statutory due dates but before the return filing due date are allowable as deduction.
  2. Interaction between Sections 36(1)(va), 2(24)(x), and 43B.
  3. Whether CPC can make such disallowance through adjustment under Section 143(1).

Petitioner’s Arguments (Assessee)

  • The contributions were deposited before the due date for filing the return of income.
  • Judicial precedents permit deduction where payment is made before the return due date.
  • Adjustment under Section 143(1) on a debatable legal issue is impermissible.
  • The disallowance ignored binding judicial decisions.

 Respondent’s Arguments (Revenue)

  • Employees’ contributions must be deposited within the due dates prescribed under PF/ESI Acts.
  • Failure to comply with statutory timelines attracts disallowance under Section 36(1)(va).
  • CPC correctly made the adjustment while processing the return.

Court Order / Findings (ITAT Allahabad)

  • The assessee had deposited the employees’ contributions before the due date of filing the return under Section 139(1).
  • Judicial authorities had consistently allowed deduction in such circumstances.
  • The issue involved interpretation of law and therefore could not be adjusted mechanically under Section 143(1).

Important Clarification

  • Deduction for employees’ PF/ESI contribution may be allowed if payment is made before the due date of filing the return (subject to applicable legal position).
  • Debatable legal issues cannot be adjusted during summary processing under Section 143(1).
  • The distinction between statutory due dates under labour laws and return filing due date is crucial.
  • CPC adjustments must be confined to apparent errors.

Link to download the order –

https://itat.gov.in/public/files/upload/1634705550-commercial%20auto%20sales%20private%20limited.pdf

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