2017 (7) TMI 1123 - AT - Income Tax

Payment of the employee s contribution towards EPF & ESI by the employer assessee - entitled for deduction u/s 43B - disallowance u/s 36(1)(va) - Held that - No disallowance can be made towards PF/ESI contributions made by the assessee within the FY or before filing of the return. In the given case, assessee has paid shortfall amount within the FY, hence, the assessee is allowed to claim the above payment as deduction in the same FY. Therefore, the AO is directed to delete the addition made. See Sagun Foundry Private Limited Versus Commissioner of Income Tax, Kanpur 2016 (12) TMI 1479 - ALLAHABAD HIGH COURT - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of PF contributions towards employees under section 36(1)(va).
2. Entitlement for deduction u/s 43B of the IT Act regarding employee's contribution towards EPF & ESI.
3. Interpretation of due date for contributions under relevant Acts.
4. Applicability of section 43B for deductions in case of belated payments.
5. Historical background and amendments related to section 43B.
6. Judicial interpretation of section 43B and its application to both employer and employee contributions.

Analysis:
1. The appeal involved the disallowance of PF contributions towards employees by the AO under section 36(1)(va). The assessee contended that though the contributions were belatedly paid, they were made before the due date of filing the return. The CIT(A) deleted the disallowance based on a previous decision of the ITAT in the assessee's own case for AYs 2008-09 and 2010-11.

2. The main issue revolved around the entitlement for deduction under section 43B of the IT Act regarding the employee's contribution towards EPF & ESI. The ITAT considered the provisions of section 36(1)(va) and 43B, along with the due date for contributions under the relevant Acts. The ITAT referred to the decision of the Hon'ble High Court and the Supreme Court in similar cases to determine the eligibility for deductions.

3. The ITAT analyzed the historical background and various amendments related to section 43B, highlighting the changes made over the years to address discrepancies in contributions towards welfare funds. The amendments aimed to ensure that contributions were credited before the due date specified in the labor welfare statutes to qualify for deductions.

4. Considering the judicial interpretations and precedents, the ITAT concluded that the assessee was entitled to deductions under sections 43B and 36(1)(va) for the contributions made towards EPF & ESI. The ITAT held that no disallowance could be made for contributions made within the financial year or before filing the return, as long as the shortfall amount was paid within the financial year.

5. The ITAT also noted that the AO had disallowed the remittance made by the assessee towards EPF & ESI with a delay of just one day, deeming it unnecessary. Ultimately, the appeal of the revenue was dismissed, and the AO was directed to delete the addition made, affirming the entitlement of the assessee for deductions under the relevant provisions of the IT Act.