2018 (9) TMI 857 - AT - Income Tax

Denial of business deduction u/s 36(1)(va) - late payment of employees contribution to Provident Fund (PF) and Employees State Insurance Corporation (ESIC)- Held that - The assessee has tried to demonstrate that employees contribution to PF/ESIC has been made before the due date as prescribed under the respective Act having regard to the month of disbursement of salary/wages and also the grace period available under the relevant Acts. It is thus broadly the case of the assessee that the relevant due date for making payment of contribution has to be seen not with reference to the relevant months relatable to wages/salary but the month of its actual disbursement. Coupled with this, grace period available under the respective Act is also required to be taken into account. The co-ordinate bench of Tribunal in Kanoi Paper & Industries Ltd. vs. ACIT 2001 (5) TMI 139 - ITAT CALCUTTA-E has observed that the relevant due date in such a case is to be seen with reference to the month of the actual disbursement of wages/salaries. We also are of the view that grace period available under the respective Acts should be taken into account while computing the delay, if any. We consider it expedient to restore the issue back to the file of the AO for factual verification and re-determination of the issue - Decided in favour of assessee for statistical purposes.

Summary

Issues:
1. Delayed appeal filing by the assessee.
2. Denial of business deduction under s. 36(1)(va) for late payment of employees' contribution to Provident Fund (PF) and Employees' State Insurance Corporation (ESIC).

Analysis:
1. The appellant filed belated appeals by 125 days, seeking condonation of the delay, which was granted by the tribunal to admit the appeal for hearing.

2. The main issue in the appeals was the denial of business deduction under s. 36(1)(va) due to alleged late payment of employees' contribution to PF and ESIC. The CIT(A) had denied the relief claimed by the assessee in the first appeal.

3. The tribunal examined the allowability of PF and ESIC contributions under s. 36(1)(va) of the Act. Referring to the decision of the Hon'ble Gujarat High Court in a similar case, the tribunal noted that the relevant 'due date' for payment had to be considered with reference to the actual disbursement of wages/salaries and the grace period available under the Acts.

4. Citing a previous case, the tribunal emphasized that the due date should be linked to the month of actual wage disbursement and that the grace period under the Acts should be taken into account when calculating any delay.

5. Consequently, the tribunal decided to remand the issue back to the Assessing Officer for factual verification and re-determination based on the observations made in the previous case. The AO was instructed to re-compute any disallowance under s. 36(1)(va) considering the due date from the month of actual salary/wage disbursement.

6. The assessee would be entitled to relief under s. 36(1)(va) if it was found that the deposits towards PF/ESIC were made within the due date from the month of actual wage disbursement, following the interpretation provided in the referenced case.

7. Ultimately, both appeals of the assessee were allowed for statistical purposes, indicating a favorable outcome for the appellant in the matter of business deduction for late payment of employees' contributions to PF and ESIC.