2022 (4) TMI 105 - AT - Income Tax

Payment of employees contribution towards provident fund contribution and ESI contribution - deposit on or before the due date of furnishing return of income u/s 139(1) - HELD THAT - It is settled issue that no debatable issues are permitted to be made adjustments u/s 143(1) of the Act. In the instant case, what was added in the intimation u/s 143(1) was the employees contribution to PF. Hon ble Madras High Court in the case of Redington (India) Ltd. 2020 (12) TMI 516 - MADRAS HIGH COURT held that employees contribution to PF and ESI is also allowable deduction, if, the same is paid before the due date for filing the return of income. This Tribunal in the case of Andhra Trade Development Corporation 2021 (5) TMI 263 - ITAT VISAKHAPATNAM held that debatable issues are not permitted to be made adjustments while processing the return of income u/s 143(1). We hold that the addition made by the CPC u/s 143(1) is unsustainable, accordingly deleted. The appeal of the assessee is allowed. 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 - Tribunal in the case of Andhra Trade Development Corporation 2021 (5) TMI 263 - ITAT VISAKHAPATNAM held that debatable issues are not permitted to be made adjustments while processing the return of income u/s 143(1) - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of adjustments made under Section 143(1) of the Income Tax Act, 1961.
2. Allowability of deduction for delayed payment of employees' contribution towards Provident Fund (PF) and Employees' State Insurance (ESI) under Section 36(1)(va) and Section 43B of the Income Tax Act, 1961.

Detailed Analysis:

1. Legality of Adjustments Made Under Section 143(1) of the Income Tax Act, 1961:

The assessee filed an appeal against the addition of ?5,01,024/- made by the Centralized Processing Centre (CPC) under Section 36(1)(va) of the Income Tax Act, 1961, for delayed payment of employees' contribution towards PF and ESI. The assessee contended that these adjustments were outside the purview of Section 143(1) as they involved debatable issues. The Tribunal noted that no scrutiny assessment was made under Section 143(3) and emphasized that debatable issues are not permitted to be adjusted under Section 143(1). It cited the case of Andhra Trade Development Corporation, where it was held that adjustments requiring verification with relevant documents are beyond the scope of Section 143(1)(a). The Tribunal concluded that the addition made by CPC under Section 143(1) was unsustainable and accordingly deleted it.

2. Allowability of Deduction for Delayed Payment of Employees' Contribution Towards PF and ESI Under Section 36(1)(va) and Section 43B:

The Tribunal addressed whether the delayed payment of employees' contribution towards PF and ESI, if paid before the due date for filing the return of income, is allowable as a deduction. The assessee argued that there is no distinction between employer and employee contributions after the omission of the second proviso to Section 43B by the Finance Act, 2003. The Tribunal referred to various judicial precedents, including the Hon'ble Karnataka High Court's decision in Essae Teraoka (P) Ltd. Vs. DCIT and the ITAT Hyderabad's decision in Tetra Soft (India) Pvt. Ltd. Vs. ACIT, which held that contributions paid before the due date for filing the return of income are allowable deductions. The Tribunal also cited the Supreme Court's principle in CIT Vs. M/s Vegetables Products Ltd., which favors the construction that benefits the assessee when two reasonable constructions of a taxing provision are possible.

The Tribunal concluded that there is no distinction between employees' and employer's contributions under the PF Act and Section 43B of the Income Tax Act. Therefore, if the contributions are paid before the due date for filing the return of income, they are allowable as deductions. Respectfully following the judicial precedents, the Tribunal held that on merits, the assessee succeeds in the appeal.

Conclusion:

The appeal of the assessee was allowed, and the addition made by CPC under Section 143(1) was deleted. The Tribunal also held that the delayed payment of employees' contribution towards PF and ESI, if paid before the due date for filing the return of income, is allowable as a deduction under Section 43B. The order was pronounced in open court on 31st March 2022.