2021 (3) TMI 522 - HC - Income Tax

Disallowance u/s 43B(b) - belated remittance of employees contribution towards PF and ESI to the Government account beyond the dates prescribed in the respective laws - whether tribunal was right in allowing the deduction when matter is pending before Supreme Court to decide whether 43B includes both employers and employees contribution? - Held that - When the matter was taken up today, learned counsel for the assessee submitted that the issue involved in this appeal is squarely covered by a decision of this Court in M/s.Essae Teraoka P. Ltd., Vs. DCIT, 2014 (3) TMI 386 - KARNATAKA HIGH COURT The aforesaid submission made on behalf of learned counsel for the assessee could not be disputed by learned counsel for the revenue. - Decided against revenue.

Summary

Issues Involved:
1. Interpretation of Section 43B of the Income Tax Act, 1961 regarding the deduction of employees' contribution towards PF and ESI.
2. Allowability of deduction when the matter is pending before the Supreme Court.

Analysis:

Issue 1: Interpretation of Section 43B of the Income Tax Act, 1961
The appeal before the Karnataka High Court involved the interpretation of Section 43B of the Income Tax Act, 1961, specifically regarding the deduction of employees' contribution towards PF and ESI. The substantial question of law raised was whether the Tribunal was correct in setting aside the disallowance made under section 43B(b) on account of belated remittance of employees' contribution towards PF and ESI. The Tribunal had treated the belated remittance as income for the assessment year, contrary to the assessing authority's decision. The Court referred to a previous decision in M/s. Essae Teraoka P. Ltd. Vs. DCIT, where a similar issue was addressed. The Court held that the issue was squarely covered by the previous decision, and based on the reasoning provided in that judgment, the substantial questions of law were answered against the revenue and in favor of the assessee.

Issue 2: Allowability of Deduction Pending Before Supreme Court
Another significant aspect of the case was the question of the allowability of deduction when the matter is pending before the Supreme Court. The Tribunal had allowed the deduction, which was challenged by the revenue in the appeal. However, the Court, based on the precedent and reasoning from the previous judgment, dismissed the appeal. The Court's decision to dismiss the appeal indicated that the issue of deduction in such cases, where the matter is pending before the Supreme Court, was settled in favor of the assessee based on the interpretation of the relevant provisions of the Income Tax Act.

In conclusion, the Karnataka High Court, comprising Mr. Justice Alok Aradhe and Mr. Justice Nataraj Rangaswamy, dismissed the appeal filed by the revenue against the order of the Income Tax Appellate Tribunal. The Court held that the substantial questions of law raised in the appeal were answered against the revenue and in favor of the assessee, based on the interpretation of Section 43B of the Income Tax Act, 1961 and the allowability of deduction when the matter is pending before the Supreme Court.