2021 (11) TMI 773 - AT - Income Tax

Delayed payment of employees' contribution to PF and ESI - allowability of employees' contribution to PF and ESI if deposited after the due date prescribed under the relevant Act, but, before the due date of filing of return of income u/s. 139(1) - Assessee submitted that the addition is not justified since the assessee has deposited the employees' contribution to PF and ESI before the due date of filing the return of income - HELD THAT - Admittedly, the assessee, in the instant case, has deposited the employees' contribution to PF and ESI after the relevant date prescribed under the PF and ESI Act, but, before the due date of filing the return of income. In the case of PCIT vs. Pro Interactive Service (India) Pvt. Ltd. 2018 (9) TMI 2009 - DELHI HIGH COURT has held that 'the legislative intent was/is to ensure that the amount paid is allowed as an expenditure only when payment is actually made. The Hon'ble High Court has further held that legislative intent and objective is not to treat belated payment of Employee's Provident Fund (EPD) and Employee's State Insurance Scheme (ESI) as deemed income of the employer under the Act. Tribunal in the case of CIT v. Dee Development Engineers Ltd. 2021 (4) TMI 393 - ITAT DELHI has decided the issue in favour of the assessee holding that no disallowance u/s. 36(1)(v) r.w.s. Section 2(24)(x) can be made if the employees' contribution to PF and ESI are deposited after the due date prescribed under the relevant Acts, but, paid before the due date of filing of return. Since the assessee, in the instant case has, admittedly, deposited the employees' contribution to PF and ESI before the due date of filing of the return of income, therefore we hold that no disallowance u/s. 36(1)(v) r.w.s. Section 2(24)(x) can be made in the instant case - Decided in favour of assessee.

Summary

Issues:
Disallowance of employees' contribution to PF and ESI due to delayed payment.

Analysis:

The appeal was filed against the order of the CIT(A) confirming the disallowance of ?2,62,984 on account of delayed payment of employees' contribution to PF and ESI for Assessment Year 2007-08. The assessee, a private limited company, had declared nil income but faced the disallowance due to late deposit of PF/ESI under section 36(1)(va) of the IT Act. The CIT(A) upheld the disallowance citing precedents, including the decision of the Delhi High Court in the case of CIT vs. Bharat Hotels Ltd. The assessee contended that the contribution was deposited before the due date of filing the return, relying on various judgments.

The Tribunal considered the arguments and legal precedents presented by both sides. The key question was the allowability of employees' contribution to PF and ESI when deposited after the due date prescribed by the Acts but before the due date of filing the return of income. Citing the decision of the Delhi High Court in PCIT vs. Pro Interactive Service (India) Pvt. Ltd., the Tribunal held that the legislative intent was to allow the amount paid as an expenditure only when payment was actually made, not to deem belated payments as the employer's deemed income.

Relying on the above decision and other judgments, the Tribunal ruled in favor of the assessee, setting aside the CIT(A)'s order. It was held that no disallowance under section 36(1)(va) could be made if the employees' contribution to PF and ESI were deposited after the Act's prescribed due date but before the due date of filing the return. As the assessee had indeed deposited the contributions before the return filing deadline, the disallowance was not justified. The appeal by the assessee was allowed, and the order of the CIT(A) was overturned.

In conclusion, the Tribunal's decision emphasized the importance of actual payment and legislative intent regarding the allowability of employees' contribution to PF and ESI. The judgment aligned with previous rulings and set a precedent for similar cases where timely deposits were made before the return filing deadline.