2008 (3) TMI 364 - AT - Income Tax

Deduction under s. 36(1)(va) r/w s. 2(24)(x) and s. 43B - Disallowance of PF and ESI contributions - deemed income under s. 2(24)(x) r/w s. 36(1)(va) - Payment made before last date of filing the return of income - CIT(A) failed to appreciate the decision (sic-deletion) of the second proviso to s. 43B - HELD THAT - It is crystal clear from the detailed discussion made by the Hon'ble Karnataka High Court in case of CIT vs. Sabari Enterprises 2007 (7) TMI 169 - KARNATAKA HIGH COURT that both the employer's and employees' contributions were considered for allowing as a deduction if paid before last date of filing the return under s. 139(1). Undisputedly, in the instant case, both the employer's and employees' contributions were not paid before statutory dates defined under PF Act, but the actual payment, was before the last date of filing the return under s. 139(1) of IT Act. The verdict of Hon'ble Karnataka High Court is squarely applicable to the facts and circumstances of the instant case. Recently, Hon'ble Delhi High Court in case of CIT vs. Dharmendra Sharma 2007 (11) TMI 39 - DELHI HIGH COURT held that Tribunal was right in deleting the disallowance of payments towards PF and ESI as the same were paid before the due date of filing of return. While so holding Hon'ble Delhi High Court relied on the verdict of Hon'ble Supreme Court in the case of CIT vs. Vinay Cement Ltd. 2007 (3) TMI 346 - SC ORDER , wherein SLP filed by the Department was dismissed by observing that even prior to amendment of s. 43B by the Finance Act, 2003, no disallowance can be made if such payment is made before last date of filing the return of income. However, no contrary decision of any High Court was brought to our notice by the ld DR. We, therefore, respectfully follow the decision of Hon'ble Karnataka High Court, and reverse the orders of the lower authorities declining the deduction of payments actually made before last date of filing the return under s. 139(1) of IT Act Accordingly, we allow the appeal in favour of the assessee. In the result, the appeal of the assessee is allowed.

Summary

Issues:
Appeal against disallowance of PF and ESI contributions under IT Act, 1961 for asst. yr. 2001-02.

Analysis:
1. The appellant contested the disallowance of Rs. 5,75,263 as deemed income under Section 2(24)(x) r/w Section 36(1)(va) of the IT Act, 1961 for belated PF and ESI contributions. The CIT(A) upheld the disallowance, ignoring the second proviso to Section 43B. The appellant argued that post the Finance Act, 2003 amendment, timely payment exempts disallowance, citing relevant case law. The Gauhati High Court and Karnataka High Court decisions supported the appellant's stance on deductions for timely contributions.

2. The Departmental Representative relied on lower authorities' decisions rejecting deductions for late payments under PF and ESI Acts. The AO disallowed both employer's and employees' contributions deposited post due date under Section 36(1)(va). The CIT(A) affirmed this disallowance. However, the High Courts' interpretations indicated that deductions were allowable if contributions were made before the last filing date under Section 139(1). The statutory provisions of Section 2(24)(x), 36(1)(va), and 43B(b) were analyzed to support the appellant's claim for deductions.

3. The High Court's detailed analysis clarified that deductions for timely contributions were permissible even before the Finance Act, 2003 amendment to Section 43B. The deletion of the second proviso to Section 43B further reinforced the assessee's entitlement to claim deductions for employer's contributions. The judgment emphasized that actual payments made before the last filing date under Section 139(1) were eligible for deductions, rejecting the Revenue's contention on statutory liability timelines.

4. The Karnataka High Court's precedent was crucial in determining the deductibility of both employer's and employees' contributions if paid before the last filing date. The Delhi High Court's recent ruling also supported deductions for PF and ESI payments made before the due date of filing returns. Following the legal precedents and absence of contrary decisions, the ITAT Delhi-G allowed the appeal, reversing the lower authorities' disallowance of deductions for timely contributions.

5. The ITAT Delhi-G concluded in favor of the assessee, allowing the appeal and emphasizing the importance of timely payments for PF and ESI contributions to claim deductions under the IT Act, 1961.