2016 (9) TMI 1040 - AT - Income Tax

Additions towards belated payment of employees contributions to PF - whether the assessee would be entitled to claim deduction for the employees contribution made to PF after the due date prescribed under the PF Act, but before the due date prescribed for filing of income tax return in the light of the provisions contained in section 36(1)(va) of the Act and section 43B(b) of the Act? - Held that - Under the said Act, the employer shall contribute both employees and employer share along with administrative charges before the due date specified under the PF Act. The Act prescribed only one due date for depositing the contribution i.e. 15th of subsequent month with the grace period of 5 days which indicates that there is no difference between employee and employer contribution. 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. Therefore, from the above, it is clear that the Provident Fund Act does not differentiate employees and employer contribution and contribution means both employees and employer contribution under the PF scheme. Section 43B of the Act provides for certain deductions to be allowed only on actual payment basis. Sub clause (b) of section 43B of the Act covers any sum payable by the assessee as an employer by way of contribution to any Provident fund or superannuation fund or gratuity fund or any other fund for the welfare of the employees. The proviso to section provides that any sum paid by the assessee on or before the due date of furnishing return of income u/s 139(1) of the Act, then no disallowance can be made under the provisions of section 43B of the Act. A careful consideration of section 43B of the Act, it is clear that an extension is granted to the assessee to make the payment of PF contributions or any other fund till the due date of furnishing return of income u/s 139(1) of the Act. Therefore, in our opinion, there is no difference between employees and employer contribution to PF and if such contribution is made on or before the due date of furnishing return of income u/s 139(1) of the Act, then deduction is to be allowed under the provisions of section 43B of the Act. Considering the facts and circumstances of this case and also following the judicial precedents as discussed above, 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/s 139(1) of the Act, then no disallowance can be made towards employees contribution to provident fund. The CIT(A) after considering the relevant details rightly deleted the additions made by the A.O. We do not see any reasons to interfere with the order of the CIT(A). Hence, we inclined to uphold the CIT(A) order and dismiss the appeal filed by the revenue. - Decided in favour of assessee

Issues Involved:
1. Deductibility of employees' contribution to Provident Fund (PF) under Section 36(1)(va) of the Income Tax Act.
2. Applicability of Section 43B of the Income Tax Act to employees' contributions to PF.
3. Interpretation of judicial precedents regarding the timing of PF contributions.

Issue-wise Detailed Analysis:

1. Deductibility of Employees' Contribution to Provident Fund (PF) under Section 36(1)(va) of the Income Tax Act:
The core issue revolves around whether the employees' contribution to the PF, paid after the due date prescribed under the PF Act but before the due date for filing the income tax return, is deductible. The Assessing Officer (A.O.) added ?85,50,398/- to the assessee's income due to delayed PF contributions, asserting that such contributions are only deductible if paid by the due date specified under the PF Act. This position is based on the provisions of Section 2(24)(x) read with Section 36(1)(va) of the Income Tax Act.

2. Applicability of Section 43B of the Income Tax Act to Employees' Contributions to PF:
The assessee argued that post the omission of the second proviso to Section 43B by the Finance Act, 2003, there is no distinction between employer and employee contributions to PF. Consequently, any sum paid before the due date for filing the return of income under Section 139(1) should be allowed as a deduction. The CIT(A) agreed with this interpretation, directing the deletion of the additions made by the A.O. The CIT(A) relied on judicial decisions supporting the view that contributions paid before the due date of filing the return should be deductible.

3. Interpretation of Judicial Precedents Regarding the Timing of PF Contributions:
The revenue's appeal emphasized that the CIT(A) erred by relying on Section 43B, which pertains to employer contributions, not employees' contributions governed by Section 36(1)(va). The revenue cited divergent High Court decisions, including those favoring the revenue's stance, such as the Kerala High Court's decision in CIT vs. Merchem Ltd. and the Gujarat High Court's decision, which upheld disallowances for delayed contributions. However, the Tribunal noted the Supreme Court's principle from CIT vs. M/s. Vegetables Products Ltd., which dictates that when two reasonable constructions of a taxing provision are possible, the one favoring the assessee should be adopted. The Tribunal preferred the judicial views supporting the assessee, including the Karnataka High Court's decision in Essae Teraoka (P) Ltd. Vs. DCIT and other ITAT decisions, which allowed deductions for contributions made before the due date for filing the return.

Conclusion:
The Tribunal concluded that there is no distinction between employees' and employer contributions to PF under the PF Act. If the total contribution is deposited before the due date for filing the return of income under Section 139(1), no disallowance should be made. The Tribunal upheld the CIT(A)'s order, dismissing the revenue's appeal and the assessee's cross-objection as infructuous. The decision emphasized the principle of adopting the interpretation that favors the assessee in cases of divergent judicial views.

Final Order:
The appeal filed by the revenue and the cross-objection filed by the assessee were dismissed. The order was pronounced in the open court on 29th July 2016.

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