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June 30, 2022

Before  AY 2021-22 Employee contributions to PF deposited prior to the ITR filing deadline are allowable

by CA Shivam Jaiswal in Income Tax

Before  AY 2021-22 Employee contributions to PF deposited prior to the ITR filing deadline are allowable

Facts and issues of the case                                     

The present appeals are filed by the above captioned assessees feeling aggrieved by the orders passed by respective appellate authorities for various assessment years mentioned herein above. The common issue involved in all these cases relates to correctness disallowance of different amount  towards employees contribution to PF/ ESIC.

It was contended by the Counsels in chorus that the assessee’s captioned above have deposited the employees contribution to PF/ ESIC well before  the  prescribed  date  for  filing the return of income u/s.139(1) although there may be some delinquency in abiding by the due date prescribed under the prescribed Act.

Observation by 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. As far as reliance  by  Ld.  DR  on  the  amendment  brought  out by Finance Act, 2021 is concerned, “notes   on clauses” to the Finance Bill 2021 clearly states that the amendment will take effect from 01st April 2021 and will prospectively apply in relation to the assessment year 2021-22 and subsequent assessment year. In such a situation, we are of the view that the  amendment brought out by Finance Act, 2021 does not apply to the assessment year under consideration.

Before 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.

Apropos to ITA No.1109/Del/2022 concerning Assessment Year 2019-20 in the case of Pepsoco India Holdings Private Limited appearing at Serial No.13 the impugned addition  has  been made while processing the return of income under Section 143(1) of the Act. The Co-ordinate Bench of the Tribunal in the case of Kalpesh Synthetics (P.) Ltd. vs. DCIT (2022) 137 taxmann.com 475 (Mum. Trib) observed that scope of prima facie disallowance under Section 143(1) is inherently very limited and only such disallowance can be made under this statutory provision as can be conclusively held to be inadmissible based on material on record. The claim of the assessee for allowability of employee’s contribution to PF/ESIC  under Section 36(1)(va) r.w.s. 2(24)(x) of  the  Act is backed by binding judicial precedent of the Hon’ble Jurisdictional High Court and hence  such  adjustments under Section 143(1), at the minimum, cannot fall in this category.

Hence on this score  also,  the  adjustments towards employees contribution to PF/ESIC resulting in disallowance thereof is not permissible in law.Court  had 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.


In the result, all captioned appeals of the respective assessees are allowed by the court.


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