2022 (2) TMI 1087 - AT - Income Tax

Delayed employees contribution to PF and ESI - Whether the assessee would be entitled to claim deduction for the employees' contribution made to PF/ESI after the due date prescribed under the respective Act, but before the due date prescribed for filing of income tax return? - HELD THAT - We find force in the arguments of the assessee for the reason that there is no difference between employees and employer contribution under the respective Act. If the legislature intends to differentiate employees and employer contribution, then there would have been two due dates like in the case of Income Tax Act. On merits also, this Tribunal has consistently viewed that the employees contribution to PF and ESI is allowable deduction if the same is paid before the due date of filing the return of income - See M/S ESSAE TERAOKA PVT LTD 2014 (3) TMI 386 - KARNATAKA HIGH COURT . We are of the view that there is no distinction between employees' and employer contribution to PF and if the total contribution is deposited on or before the due date of furnishing return of income u/sec. 139(1) of the Act, then no disallowance can be made towards employees' contribution to PF/ESI. - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of employees' contribution towards PF and ESI.
2. Interpretation of provisions under section 36(1)(va) and section 43B of the Act.
3. Distinction between employer and employee contributions.
4. Allowability of deduction for contributions made before the due date of filing the return of income.

Analysis:
1. The appeal was filed against the order of the Commissioner of Income Tax (Appeals) regarding the disallowance of employees' contributions towards PF and ESI. The Assessing Officer disallowed the contributions due to delayed payments, invoking section 36(1)(va) of the Act.

2. The Commissioner upheld the AO's decision, citing amendments in the Finance Act 2021 related to sections 36 and 43B of the Act. The assessee contended that the second proviso to section 43B was omitted in 2003, eliminating a specific provision for employees' contributions to PF/ESI.

3. The Tribunal analyzed the provisions of section 36(1)(va) and section 43B(b) of the Act to determine the entitlement of the assessee to claim deductions for employees' contributions made after the due date under the respective Acts but before the due date for filing income tax returns. The Tribunal noted the absence of differentiation between employer and employee contributions post the 2003 amendment.

4. Relying on judicial precedents, including a decision by the ITAT Visakhapatnam in a previous case, the Tribunal concluded that employees' contributions to PF and ESI are deductible if paid before the due date for filing the return of income. The Tribunal emphasized that there is no distinction between employees' and employer contributions to PF, and disallowance is not warranted if the total contribution is deposited before the due date of furnishing the return of income.

5. Consequently, the Tribunal allowed the appeal filed by the assessee, emphasizing that no disallowance can be made towards employees' contribution to PF/ESI if the total contribution is deposited on or before the due date of filing the return of income under section 139(1) of the Act.

6. In conclusion, the Tribunal ruled in favor of the assessee, allowing the appeal and emphasizing the importance of timely contributions to PF and ESI for claiming deductions under the Act.