2015 (11) TMI 188 - HC - Income Tax

Disallowance u/s.43B - employer and employees contribution to P.F. And E.S.I. made beyond the due date - ITAT deleted the addition - Held that - Insofar as the employer s contribution to PF and ESI is concerned, the Supreme Court in the case of Commissioner of Income Tax, Kolkata-III v. Alom Extrusions Limited (2009 (11) TMI 27 - SUPREME COURT) has held that the proviso to section 43B of the Act which came to be introduced with effect from 1.4.2004 is retrospective in operation. The proviso to section 43B provides that nothing contained in this section shall apply in relation to any sum which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub-section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred and the evidence of such payment is furnished by the assessee along with such return. In the present case, the assessee having actually paid the amount of employer s contribution before the due date for furnishing the return of income, the Tribunal was justified in deleting the disallowance made by the assessing officer under section 43B of the Act. Insofar as the employees contribution is concerned, this court in the case of Commissioner of Income Tax II v. Gujarat State Road Transport (2014 (1) TMI 502 - GUJARAT HIGH COURT) has held that considering section 36 (1) (va) of the Act read with sub-clause (x) of clause (24) of section (2), with respect to the sum received by the assessee from any of his employees to which provisions of sub-clause (x) of clause (24) of section (2) apply, the assessee shall be entitled to deduction in computing the income referred to in section 28 with respect to such sum credited by the assessee to the employees account in the relevant fund or funds on or before the due date mentioned in explanation to section 36 (1) (va) of the Act. The court held that the Tribunal, therefore, erred in deleting disallowances being employees contribution to PF account/ ESI account made by the Assessing Officer as such sums were not credited by the respective assessee to the employees accounts in the relevant fund or funds on or before the due date as per explanation to section 36 (1) (va) of the Act, that is, the due date by which the concerned assessee was required as an employer to credit the employees contribution to the employees account in the provident fund under the Provident Funds Act and/or to ESI fund under the ESI Act. Under the circumstances, the assessee was not entitled to deduction under section 43B for employees contribution - Decided partly in favour of assessee

Summary

Issues Involved:
1. Disallowance of employer and employees contribution to P.F. and E.S.I. made beyond the due date under section 43B of the Income Tax Act, 1961.

Analysis:
1. The case involved an appeal under section 260A of the Income Tax Act regarding the disallowance of contributions to P.F. and E.S.I. The Assessing Officer disallowed an amount under section 43B as the contributions were not made within the due date. The assessee argued that payments were made before the due date for filing the return, relying on an amendment by the Finance Act 2003. The Commissioner (Appeals) deleted the disallowance, which was confirmed by the Tribunal.

2. The Senior Standing Counsel for the appellant argued that the controversy regarding employer's and employees' contributions had different legal standings. The Supreme Court's decision in a similar case favored the assessee concerning the employer's contribution, while a previous decision of the High Court favored the revenue regarding employees' contribution. The absence of the respondent during the proceedings was noted.

3. The disallowance under section 43B pertained to both employees' and employer's contributions, although the payments were made before the due date of filing the return. The Supreme Court's ruling established that the proviso to section 43B is retrospective and exempts sums paid before the due date. Hence, the Tribunal rightly deleted the disallowance of the employer's contribution.

4. However, concerning employees' contribution, the High Court held that the Tribunal erred in deleting the disallowance. The court referred to specific sections of the Act and explained that the assessee was not entitled to deduction under section 43B for employees' contributions not paid by the due date. Therefore, the Tribunal's decision to delete the disallowance of employees' contributions was not sustainable.

5. The judgment concluded by affirming the deletion of the disallowance of the employer's contributions but disallowing the deletion of employees' contributions. The appeal was partly allowed by setting aside the Tribunal's decision to delete the disallowance of employees' contributions under section 43B of the Act.