2017 (1) TMI 42 - AT - Income Tax

Disallowance of employees contribution to PF and ESI - amounts not deposited before the due date - Held that - It is not in dispute that the contribution to PF and ESI was deposited by the assessee before due date of filing the return of income u/s.139(1) of the Act. Therefore, set aside the orders of lower authorities and delete the disallowance of employees contribution to PF and ESI. See COMMISSIONER OF INCOME TAX, CIRCLE-I, KOLKATA Versus M/s. VIJAY SHREE LIMITED 2011 (9) TMI 30 - CALCUTTA HIGH COURT and Essae Teraoka (P) Ltd.vs DCIT 2014 (3) TMI 386 - KARNATAKA HIGH COURT - Decided in favour of assessee.

Summary

Issues involved: Disallowance of employees' contribution to PF and ESI due to non-deposit before the due date under the respective Act.

Analysis:
1. The appeal was filed against the order of CIT(A) confirming the disallowance of employees' contribution to PF and ESI. The Assessing Officer disallowed the amount as it was not remitted within the due date specified in the statutes.

2. The CIT(A) upheld the Assessing Officer's decision, citing a Gujarat High Court case. However, the ITAT referred to a Karnataka High Court judgment which clarified that the word "contribution" in EPF and ESI Act includes both employees' and employers' contributions, allowing deduction under section 43B for employees' contribution to PF.

3. Various High Courts, including Rajasthan, Uttarakhand, and Bombay, have held that section 43B overrides section 36(1)(va), allowing deduction for employees' contribution. The ITAT applied the principle that if different High Courts have contrary views and none is the jurisdictional High Court, the decision favoring the assessee should be followed, as per a Supreme Court ruling.

4. Considering the above precedents, the ITAT held that employees' contribution to PF and ESI is deductible if deposited before the due date of filing the return. Since the contribution was deposited before the due date in this case, the disallowance was deleted, and the appeal was allowed.

5. The judgment emphasized the importance of timely deposit of employees' contribution to PF and ESI to avail deductions, in line with various High Court decisions and the principle of following the view favorable to the assessee in case of conflicting judgments.

This detailed analysis of the judgment provides a comprehensive understanding of the issues involved and the reasoning behind the decision.