2019 (11) TMI 1186 - AT - Income Tax

Deduction of P.F. and E.S.I. contribution of Employees - Delay in deposits - HELD THAT - Assessee is in the business of wholesale and retail trading of gold covering jewellery. As observed that assessee had deducted PF ESI share of employees contribution from salaries of employees to the tune of ₹33,32,061/- in aggregate during the year under consideration, which admittedly was deposited late by assessee beyond due date prescribed for deposit of PF/ESI under relevant statutes governing PF ESI, but admittedly said amounts of employees contribution towards PF/ESI deducted by assessee from employees salaries were deposited by assessee before due date prescribed for filing of return of income u/s.139(1). We have observed in the case of CIT v. M/s.Industrial Security and Intelligence India Pvt. Ltd 2015 (7) TMI 1063 - MADRAS HIGH COURT for ay 2003-04 and 2004-05 has held that if employees contribution of PF and ESI deducted from employees salary is deposited before due date prescribed u/s.139(1) of 1961 Act, the deduction for same shall be allowed. As in the case of Carat Lane Trading Pvt. Ltd. 2017 (12) TMI 1669 - ITAT CHENNAI we decide this issue in favour of the assessee and hold that employees contribution towards PF and ESI deducted by assessee from salaries of employees which is deposited by assessee beyond the due date prescribed under relevant statutes governing PF and ESI, but deposited prior to due date of filing of return of income u/s.139(1) of the 1961 Act shall be allowed as deduction and we direct deletion of the additions made to the income of the assessee. The assessee succeeds in its appeal filed with tribunal. - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance of ?33,32,061 towards employee’s contribution to Provident Fund (PF) and Employees State Insurance (ESI) deposited late.
2. Applicability of Section 43B of the Income-tax Act, 1961 concerning the delayed deposit of employee contributions.
3. Interpretation of judicial decisions and CBDT Circular No. 22/2015 regarding the treatment of delayed employee contributions.

Detailed Analysis:

Issue 1: Disallowance of ?33,32,061 towards Employee’s Contribution to PF and ESI Deposited Late
The assessee, engaged in wholesale and retail trading of gold covering jewelry, deducted ?33,32,061 from employees' salaries as contributions towards PF and ESI but deposited this amount beyond the due dates prescribed under the relevant statutes. The Assessing Officer (AO) disallowed this amount, invoking Section 36(1)(va) read with Section 2(24)(x) of the Income-tax Act, 1961, which deems such delayed deposits as income of the assessee.

Issue 2: Applicability of Section 43B of the Income-tax Act, 1961
The assessee argued that the provisions of Section 43B should apply, which allows deductions if the amount is paid before the due date for filing the return of income under Section 139(1). The AO, however, held that Section 43B applies only to employer contributions and not to employee contributions, which are specifically covered under Section 36(1)(va).

Issue 3: Interpretation of Judicial Decisions and CBDT Circular No. 22/2015
The AO relied on the decisions of the Gujarat High Court in CIT v. Gujarat State Road Transport Corporation and the Kerala High Court in CIT v. Merchem Ltd., which held that employee contributions deposited beyond the due date prescribed under the relevant statutes cannot be allowed as deductions. The AO also referred to CBDT Circular No. 22/2015, which supports this view.

Tribunal's Findings:

On Disallowance of Employee’s Contribution to PF and ESI:
The Income Tax Appellate Tribunal (ITAT) Chennai noted that the assessee had deposited the employee contributions before the due date for filing the return of income under Section 139(1). The Tribunal referred to the decision of the Madras High Court in CIT v. M/s. Industrial Security & Intelligence India Pvt. Ltd., which held that if employee contributions are deposited before the due date for filing the return, they should be allowed as deductions.

On Applicability of Section 43B:
The Tribunal observed that the Madras High Court's decision in CIT v. M/s. Industrial Security & Intelligence India Pvt. Ltd. and the Delhi High Court's decision in CIT v. AIMIL Ltd. support the view that employee contributions deposited before the due date for filing the return should be allowed as deductions. The Tribunal also noted that the Chennai Tribunal in ACIT v. Carat Lane Trading Pvt. Ltd. had taken a similar stance.

On Judicial Decisions and CBDT Circular:
The Tribunal acknowledged the conflicting views among various High Courts but chose to follow the jurisdictional High Court's decision in CIT v. M/s. Industrial Security & Intelligence India Pvt. Ltd. and the consistent view of the Chennai Tribunal. The Tribunal held that employee contributions deposited before the due date for filing the return should be allowed as deductions, notwithstanding the delay in depositing them as per the relevant statutes.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, directing the deletion of the additions made to the income on account of delayed deposit of employee contributions towards PF and ESI. The Tribunal emphasized the importance of following the jurisdictional High Court's decisions and consistent Tribunal rulings, thereby granting relief to the assessee.

Order:
The appeal filed by the assessee in ITA No.693/Chny/2017 for the assessment year 2013-14 is allowed. The order was pronounced on the 25th day of November, 2019 in Chennai.