2011 (7) TMI 1223 - AT - Income Tax

Summary

Issues involved: Disallowance of P.F. & ESIC u/s 36(1)(va) for delayed payment.

Issue 1: Disallowance of P.F. & ESIC u/s 36(1)(va) for delayed payment

- The assessee's appeal contested the disallowance of Rs. 1,36,936 made by the Assessing Officer (AO) on the grounds of delayed payment for employee's contribution to PF and ESIC.
- The AO disallowed the claim for deduction u/s 36(1)(va) as the payments were made beyond the due date stipulated under the relevant enactments.
- The CIT(A) upheld the disallowance, stating that employee's contribution is allowable u/s 36(1)(va) and not covered under sec. 43B, which restricts the allowance of expenses otherwise allowable under the Act.
- The CIT(A) emphasized that employee's contribution is only allowable if paid within the due date mentioned in the PF Act, and any delay renders it non-deductible under sec. 36(1)(va).
- The CIT(A) highlighted the need for harmonious construction in interpreting statutes to avoid redundancy and confirmed the disallowance of the employee's contribution.
- The ITAT, considering various judicial decisions, held that employee's contribution towards PF & ESI paid before the due date of filing the return u/s 139(1) of the Act is admissible under sec. 36(1)(va).
- Consequently, the ITAT directed the AO to allow the payment made on account of employees' contribution towards PF & ESI before the due date of filing the return u/s 139(1) of the Act, thereby allowing the appeal.

Separate Judgement:
- The ITAT Ahmedabad Benches consistently followed the decision of the Hon'ble Delhi High Court in CIT v. P.M. Electronics Ltd., wherein contributions made after the due date prescribed under the PF Act but before the due date for furnishing the return of income are allowable under sec. 36(1)(va) read with sec. 2(24)(x) and sec. 43B of the Act.
- The Hon'ble Apex Court in CIT vs. Alom Extrusions Ltd. held that the omission of the second proviso to section 43B of the Act by the Finance Act, 2003, operated retrospectively from April 1, 1988, allowing deductions for contributions made before the due date for filing the return of income.
- Various High Courts, including Karnataka and Delhi, have supported the admissibility of employees' contributions towards PF & ESI if paid before the due date for filing the return, emphasizing the retrospective application of relevant provisions for deduction eligibility.
- The ITAT, in line with these decisions, concluded that employees' contributions paid before the due date of filing the return u/s 139(1) of the Act are permissible, overturning the CIT(A)'s disallowance and directing the AO to allow such payments.

This judgment highlights the importance of timely payment of employee contributions towards PF & ESI to avail deductions under sec. 36(1)(va) and the retrospective application of relevant provisions for deduction eligibility.