Facts of the Case

The assessee, a private limited company, filed its return of income declaring total income under normal provisions. The return was processed under Section 143(1) by the Centralized Processing Centre (CPC), Bengaluru.

During processing, an addition of ₹11,20,461 was made on account of employees’ contributions to Provident Fund (PF) and Employees’ State Insurance (ESI), invoking Section 36(1)(va) read with Section 2(24)(x), on the ground that the contributions were not deposited within the due dates prescribed under the respective welfare statutes.

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 income-tax return under Section 139(1). The CIT(A) upheld the adjustment, and the assessee appealed before the ITAT.

 Issues Involved

  1. Whether employees’ PF/ESI contributions deposited after statutory due dates but before the return filing due date are allowable as deduction.
  2. Applicability of Sections 36(1)(va), 2(24)(x), and 43B in such cases.
  3. Validity of adjustment made under Section 143(1) during processing of return.

 Petitioner’s Arguments (Assessee)

  • The contributions were deposited before the due date of 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 issue was improper.
  • The disallowance ignored binding judicial interpretations.

Respondent’s Arguments (Revenue)

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

 Court Order / Findings (ITAT Allahabad)

  • The assessee had deposited employees’ PF/ESI contributions before the due date of filing the return.
  • Judicial precedents consistently held that such payments are allowable as deduction.
  • The issue involved interpretation of law and could not be summarily adjusted under Section 143(1).

The Tribunal relied on authoritative rulings including the Supreme Court decision in Alom Extrusions Ltd. and High Court judgments, holding that deductions are permissible where payment is made before the return due date.

Important Clarification

  • Deduction for employees’ PF/ESI contributions may be allowed if payment is made before the due date of filing the return (subject to prevailing legal position).
  • Issues requiring legal interpretation cannot be adjusted mechanically under Section 143(1).
  • The distinction between statutory due dates under labour laws and return filing due date is crucial in tax computation.
  • CPC adjustments must be confined to apparent errors.

Link to download the order –

https://itat.gov.in/public/files/upload/1639654366-commercial%20autho%20sales.pdf

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