Facts of the Case

The assessee had collected employees’ contributions towards Provident Fund (PF) and Employees’ State Insurance (ESI) from salaries and deposited the same after the due dates prescribed under the respective welfare statutes. However, the payments were made before the due date for filing the income-tax return under Section 139(1).

During assessment, the Assessing Officer disallowed the deduction on the ground that employees’ contributions deposited beyond the statutory due date are not allowable under Section 36(1)(va), treating the amounts as income under Section 2(24)(x).

Issues Involved

  1. Whether delayed deposit of employees’ PF/ESI contribution is allowable if paid before the due date of filing the return.
  2. Whether Section 43B can override the provisions of Section 36(1)(va).
  3. Whether amendments introduced by the Finance Act, 2021 apply retrospectively or prospectively.
  4. Whether the disallowance made by the Assessing Officer was legally justified.

Petitioner’s Arguments (Revenue)

  • Employees’ contributions are governed specifically by Section 36(1)(va).
  • Payments made after the due date prescribed under PF/ESI laws are not allowable as deduction.
  • The Finance Act, 2021 clarified that Section 43B does not apply to employees’ contributions.
  • Therefore, the delayed payments must be treated as income and disallowed.

Respondent’s Arguments (Assessee)

  • The contributions were deposited before the due date for filing the return under Section 139(1).
  • Judicial precedents prior to the 2021 amendment allowed such deductions.
  • The amendments introduced by the Finance Act, 2021 are prospective in nature.
  • Hence, disallowance for earlier years was unwarranted.

Court Order / Findings (ITAT)

  • Prior to the Finance Act, 2021, several High Courts had held that payments made before the return filing due date are allowable.
  • The amendment clarifying the distinction between employer’s and employees’ contributions is prospective.
  • For the relevant assessment year, the law as interpreted by courts favored the assessee.
  • Accordingly, the delayed deposit could not be disallowed when paid before the due date of filing the return.

Important Clarification

  • Employees’ contributions deposited late but before the return filing due date were allowable for pre-amendment years.
  • Finance Act, 2021 amendments apply prospectively.
  • Distinction between employer’s and employees’ contributions is critical.
  • Compliance with statutory due dates remains essential to avoid future disallowance.

Link to download the order –

https://itat.gov.in/public/files/upload/1640156787-ita%20no.%2016%20alld%202021%20Lav%20Kush.pdf

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