2008 (1) TMI 433 - AT - Income Tax

Summary

Issues:
1. Disallowance of PF and ESIC deductions by the AO.
2. Upholding of the disallowance by the CIT(A).
3. Interpretation of Section 43B of the Income Tax Act regarding PF and ESIC contributions.
4. Applicability of previous tribunal and high court decisions on the issue.

Detailed Analysis:
1. The appeal was filed against the order disallowing PF and ESIC deductions for the assessment year 2001-02. The AO disallowed Rs. 3,68,842 for PF and Rs. 72,015 for ESIC due to delayed payments beyond the grace period allowed. The assessee contested the disallowance as unfounded and exorbitant.

2. The CIT(A) upheld the disallowance, leading to the appeal. The only effective ground raised was the justification of disallowing PF and ESIC deductions, which the assessee argued against as being excessive.

3. The issue revolved around the interpretation of Section 43B of the Income Tax Act. The assessee cited the decision of Tribunal Delhi Bench 'D' and the Delhi High Court case of CIT vs. Dharmendra Sharma, emphasizing that contributions made before the due date for filing the return should not be disallowed. The High Court held that PF and ESIC contributions paid before the return filing date cannot be disallowed.

4. Referring to the decisions mentioned, the Tribunal directed the AO to allow the claim under Section 43B for employers' contributions towards PF and ESIC if payments were made before the due date for filing the return. Employees' contributions were not covered under Section 43B but treated as the assessee's income under Section 2(24)(x) and deductible in the year of actual payment.

In conclusion, the appeal was allowed for statistical purposes, and the disallowance of PF and ESIC deductions was overturned based on the interpretation of Section 43B and the precedents set by previous tribunal and high court decisions.