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May 27, 2022

Deductions are allowed for PF/ESI contributions made late but before the return is filed.

by CA Shivam Jaiswal in Income Tax

Deductions are allowed for PF/ESI contributions made late but before the return is filed.

Facts and Issue of the case

All the appeals are common and are related to disallowance of employee’s contribution of PF/ESI on account of delay in deposits as per the respective Acts. Therefore, Court clubbed all of them together for the sake of brevity and convenience and disposing the same by way of this consolidated order. Similar grounds with different amounts and assessment years have been raised in other appeals but however, the sum & substance and the issues involved in all the appeals are identical.

Before this court, at the outset, Learned AR submitted that the sole grievance of the assessee is confirming the additions on account of delay in deposit of employee’s contribution towards provident fund and ESI fund.

Before this court, Learned AR submitted that additions have been made in the intimation issued by CPC, Bangalore u/s 36(1)(va) of the Income Tax Act, 1961 (“the Act”) for the reason that the contribution received towards PF/ESIC by the assessee from its employees was not deposited before the due date. AR submitted that though there has been delay in deposit of PF/ESIC Contributions but all the contributions received by the assessee from its employees, have been deposited with the appropriate authorities before the filing of return of income by the assessee. AR therefore, submitted that since the amounts have been deposited before the filing of return of income, no disallowance is called for and for aforesaid proposition, he relied on the decision of Azamgarh   Steel   &   Power   vs.   CPC   in   ITA   No.1626/Del/2020 dated 31.05.2021 and CIT vs. AIMIL Ltd.  [2010]  188  Taxman 265 (Delhi) and various other decisions. Learned Sr. DR on the other hand supported the order  of lower authorities and also placed reliance on the decision of Delhi Tribunal in the case of Vedvan Consultants Pvt. Ltd. vs DCIT in ITA     No.1312/Del/2020     order     dated     26.08.2021.     AR also submitted that the amendment brought out by Finance Act 2021 would be applicable to the  present case as by the amendment, it has been clarified that provisions of Section 43B of the Act shall not apply and shall be deemed never to have been applied to a sum received by the assessee from any of his employees to which the provisions of sub clause (x) of Clause (24) of Section 2 applies.

Observation of the court

Court had heard the rival submissions and perused the material available on record. The issue is no more res-integra. The issue has already been settled in favour of the assessee by various judicial pronouncements by the Tribunal. The Hon’ble Jurisdictional High Court of Delhi in the case of PCIT vs Pro Interactive   Service   (India)   Pvt.Ltd.   in   ITA   No.983/2018   [Del.] order dated 10.09.2018

Before this court, the Revenue has not placed any material on record to demonstrate that the aforesaid order cited hereinabove has been overruled/stayed/set aside by higher judicial forum. In view of the aforesaid facts, we are of the view that the AO was not justified in denying the deduction claimed by the assessee on account of late deposit of PF/ESI/EPF, albeit before filing the return of income. Admittedly, in all the above-stated matters, the Revenue had not contended that the  assessee  has  deposited  the  contribution  after the filing of the return of income.

Court has proceeded to conclude the issue of allowability of expenses attributable to employee provident fund and employee state insurance scheme on the assurance that the employee’s contributions towards PF & ESI have been deposited before the due date of filing of return of income. However, the Revenue shall be at liberty to seek restoration of the appeal where it is found as a matter of fact that the assessee has failed to deposit the employee’s contribution before the due date of filing of return of income stipulated u/s 139(1) of the Act in accordance with law. In view of the above and respectfully following the decision of the Hon’ble Jurisdictional High Court of Delhi cited hereinabove, we allow the appeals filed by the captioned assessees.

Apropos to ITA No.1233/Del/2021 concerning Assessment Year 2018-19 in the case of Chatru Mal Garg appearing at Serial No.33 captioned above, it was pointed out that the AO has attempted to make adjustment in respect of disallowance of expenditure towards belated payment of employee’s contribution towards PF & ESI in the proceedings initiated u/s 154 of the  Act. Court express our agreement with the plea delved on behalf of the assessee that such disallowance being highly debatable in nature in the light of the decision of Hon’ble High Court, is not susceptibl to rectification u/s 154 of the Act at the threshold. Thus, the additions on accounts of belated employee’s contribution is neither permissible under the normal provisions nor under section 154 of the Act insofar as this appeal is concerned.



The captioned appeals of the respective assessees were allowed by the court.

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