2007 (12) TMI 245 - AT - Income Tax

Summary

Issues Involved:

1. Disallowance of PF and ESI payments u/s 43B of the IT Act.
2. Retrospective application of the omission of the second proviso to s. 43B by the Finance Act, 2003.

Summary:

Issue 1: Disallowance of PF and ESI payments u/s 43B of the IT Act

During the assessment proceedings, the AO noticed that certain payments of PF and ESI had been deposited beyond the due dates. The AO disallowed the claim of deduction u/s 43B of the Act and added an amount of Rs. 6,10,794 for PF and Rs. 83,196 for ESI to the income of the assessee. On appeal, the CIT(A) reduced the disallowance from Rs. 6,93,990 to Rs. 1,23,587, observing that most of the cheques were tendered within the grace period permitted. However, payments for August 1999 and November 2000 were considered belated and hit by the provisions of s. 43B.

Issue 2: Retrospective application of the omission of the second proviso to s. 43B by the Finance Act, 2003

The assessee argued that the omission of the second proviso to s. 43B by the Finance Act, 2003, effective from 1st April 2004, should be considered retrospective, allowing deductions for payments made before the due date for filing the return. The learned counsel cited various case laws, including the Special Bench of Tribunal, Chennai in the case of Kwality Milk Foods Ltd., and the Gauhati High Court in CIT vs. George Williamson (Assam) Ltd. However, the learned Departmental Representative relied on the decision in CIT vs. Synergy Financial Exchange Ltd., which held that the omission of the second proviso was not retrospective.

The Tribunal noted that the jurisdictional High Court of Delhi in CIT vs. Dharmendra Sharma held that contributions towards PF and ESI, though paid after the due date but before the due date of filing the return, are entitled to deduction. Therefore, the Tribunal set aside the matter to the AO to allow the claim of the assessee accordingly.

Conclusion:

The appeal filed by the assessee is allowed for statistical purposes, with instructions to the AO to re-examine the facts in light of the observations made regarding the retrospective application of the omission of the second proviso to s. 43B.