2021 (9) TMI 1350 - AT - Income Tax

Disallowance of employees contribution to PF and ESI - Payment before the due date for filing the return of income - HELD THAT - Employees contribution to PF and ESI is allowable deduction if the same is paid before the due date of filing the return of income. In the case of APEPDCL 2016 (9) TMI 1040 - ITAT VISAKHAPATNAM after considering the decision of Hon ble Karnataka High Court in the case of Essae Teraoka (P) Ltd. 2014 (3) TMI 386 - KARNATAKA HIGH COURT and the decision of coordinate bench of ITAT Hyderabad in the case of Tetra Soft (India) Pvt. Ltd. 2015 (10) TMI 1601 - ITAT HYDERABAD and also taking support from the decision of Hon ble Supreme Court in the case of CIT Vs. M/s Vegetables Products Ltd. 1973 (1) TMI 1 - SUPREME COURT decided the issue in favour of the assessee.

Summary

Issues Involved:
1. Adjustment under Section 143(1) of the Income Tax Act, 1961.
2. Allowability of employees' contribution to PF and ESI if paid after the due date under respective Acts but before the due date for filing the return of income.

Issue-wise Detailed Analysis:

1. Adjustment under Section 143(1) of the Income Tax Act, 1961:
The appeal concerns the adjustment made by the Centralized Processing Center (CPC) of the Income Tax Department under Section 143(1) of the Income Tax Act, 1961, where an amount of Rs. 10,33,125/- was disallowed towards employees' contributions to PF and ESI. The assessee argued that these adjustments, being debatable issues, should not have been made under Section 143(1). The Tribunal noted that it is a settled issue that no debatable issues are permitted to be adjusted under Section 143(1). The Tribunal referenced the case of Andhra Trade Development Corporation, where it was held that adjustments requiring verification with relevant documents are beyond the scope of Section 143(1). Thus, the Tribunal concluded that the addition made by the CPC under Section 143(1) was unsustainable and accordingly deleted it.

2. Allowability of Employees' Contribution to PF and ESI:
On the merits, the Tribunal examined whether employees' contributions to PF and ESI, paid after the due date under the respective Acts but before the due date for filing the return of income, are allowable deductions. The Tribunal referenced several judicial precedents, including the Hon’ble Madras High Court in the case of Redington (India) Ltd., which held that such contributions are allowable if paid before the due date for filing the return of income. The Tribunal also cited the case of APEPDCL, where it was determined that there is no distinction between employer and employee contributions after the omission of the second proviso to Section 43B by the Finance Act, 2003. The Tribunal further noted that various High Courts, including Karnataka and Rajasthan, have held that contributions paid before the due date for filing the return of income are allowable deductions. The Tribunal found that the Provident Fund Act does not differentiate between employee and employer contributions, and both are covered under Section 43B of the Income Tax Act. Consequently, the Tribunal held that on merits, the assessee's contributions to PF and ESI are allowable deductions if paid before the due date for filing the return of income.

Conclusion:
The Tribunal allowed the appeal of the assessee, concluding that the adjustment made under Section 143(1) was unsustainable and that on merits, the employees' contributions to PF and ESI paid before the due date for filing the return of income are allowable deductions. The appeal was thus allowed in favor of the assessee.