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TMI Blog2017 (11) TMI 512X X X X Extracts X X X X X X X X Extracts X X X X ..... nce and brevity. ITA No. 6266/Del/2014 for AY: 2010-11 2. First we take up the ground raised in ITA No. 6266/Del/2014 for assessment year 2010-11, which are reproduced as under: 1. Whether Ld. CIT(A) is justified in deleting the disallowance of ₹ 29,95,149/- ignoring the fact that employees contribution to PF and ESI received by the employer is income in his hands as per section 2(24)(x) and it is deductible only if it is paid within the due date as per the respective Act as specified in section 36(1)(va) of the I.T. Act, 1961? 2. Whether Ld. CIT(A) is justified in deleting the disallowance of ₹ 29,95,149/- ignoring the fact that the provisions of section 43B which is applicable in respect of employees contribution is different from the provisions of section 36(l)(va) which is applicable in respect of employee s contribution? 3. Whether Ld. CIT(A) is justified in deleting the disallowance without appreciating the fact that the opening words of section 43B make it clear that the said section would have overriding effect and apply only when a deduction is otherwise allowable under the I.T Act, 1961? 4. Whether Ld. CIT(A) is justif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... )(va) of the Act rather than the provisions of section 43B of the Act. In support of his finding, he relied on the decision of the Tribunal Kolkata Bench in the case of DCIT Vs. Bengal Chemicals and Pharmaceutical Ltd. (2011) 11 taxmann 328 (Kol) and other decisions cited in the assessment order. 3.1 On further appeal, the Ld. CIT-(A) after considering the facts of the case in various decisions on the issue in dispute, allowed the appeal of the assessee. Aggrieved, the Revenue is in appeal before the Tribunal raising the grounds as reproduced above. 4. The sole issue raised in the grounds of the appeal is related to addition in respect of ESI payment, deleted by the Ld. CIT-(A). 5. Before us, the Ld. Sr. DR relied on the order of the Assessing Officer and argued that in terms of section 36(1)(va) of the Act, employees contribution deposited after due date of the relevant Act, is not allowable. 6. On the other hand, Ld. counsel, relied on the order of the learned CIT-(A). 7. We have heard the rival submissions and perused the relevant material on record. We find that the only issue involved in various grounds raised is whether the payment of ESI made after the due da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ided a provision was made to that effect in the books of account. In this situation it was possible for an employer to collect employees' contribution to Provident Fund/ESI and make a provision in the books of account and claim the same amount as deduction without even making the payment to the Government. In order to take care of this problem the Second Proviso was introduced to section 43B of the I. T. Act by Finance Act, 1989 ith effect from 1- 4-89. The relevant portion of the said Proviso reads as follows: Provided further that no deduction shall, in respect of any sum referred to in clause (b), be allowed unless such sum has actually been paid in cash or by issue of a cheque or draft or by any other mode on or before the due date as defined in the Explanation below clause (va) of sub section (1) of section 36. 4.4 After this amendment it became crystal clear that an employer had to make payment of employees' contribution in order to enable a deduction from its income. As regards the due date for making the payment, it was specified that the due date would be the same as given in section 36(l)(va) of the I. T. Act, 1961. This due date was the date by wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l)(va) of the Act. If that had been the case, then the employers would have got deduction on account of employees' contribution to Provident Fund without making the payment since, what is required in section 36(l)(va) is to make a provision for employees' contribution to provident fund. It was the introduction of Section 43B(b) and its Second Proviso that the assessing officer started making disallowance on account for employees' contribution to provident fund since that section made it obligatory for them to make payment of employees' contribution by the due date specified in the respective Acts in order to claim it as a deduction. It was only when the Government found that the provision was too harsh that amendment was brought about by Finance Act 2003 with effect from 1-4-2004. The amendment made it crystal clear that if the employer deposited the contribution of employees' to ESI/EPF by the due date for filing of return of income, there was no room for disallowance on the issue of employees' contribution to ESI/EPF. 4.6 The above discussion makes it abundantly clear that there is no force in the AO's contention that section 43B is not applicab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said order are given hereunder: 11. Before we delve into this discussion, we may take note of some more provisions of the Act. Section 2(24) of the Act enumerates different components of income. It, inter alia, stipulates that income includes any sum received by the assessee from his employees as contributions to any provident fund or superannuation fund or any fund set up under the provisions of the Employees' State Insurance Act, 1948 (34 of 1948), or any other fund for the welfare of such employees. It is clear from the above that as soon as employees contribution towards provident fund or ESI is received by the assessee by way of deduction or otherwise from the salary/wages of the employees, it will be treated as 'income' at the hands of the assessee. It clearly follows therefrom that if the assessee does not deposit this contribution with provident fund/ESI authorities, it will be taxed as income at the hands of the assessee. However, on making deposit with the concerned authorities, the assessee becomes entitled to deduction under the provisions of section 36(l)(va) of the Act. Section 43B(b), however, stipulates that such deduction would be permissib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (va) and u/s 43B of the Income-tax Act, 1961 on account of late payment of employee's as well as employer's contribution to PF ESI as the same had been deposited prior to the filing bf the return under Section 139 (1) of the Act. Thus, question (B) stands answered against the revenue and in favour of the assessee. 4.10 In addition, there is the latest judgment of the Karnataka High Court as per which employees' contribution to PF and ESI is allowable as a deduction provided the same is paid before the due date for filing the return of income. The judgment is Essae-Teraoka Private limited Vs. DCIT (2014) 43 Taxmann.com 33 (Karnataka). The relevant extracts of the said order are reproduced hereunder: Paragraph-38 of the PF Scheme provides for Mode of payment of contributions. As provided in sub-para(l), the employer shall, before paying the member, his wages, deduct his contribution from his wages and deposit the same together with his own contribution and other charges as stipulated therein with the provident fund or the fund under the ESI Act within fifteen days of the closure of every month pay. It is clear that the word contribution used in Clause( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the employees contribution is not deposited by the due date prescribed under the relevant Acts and is deposited late, the employer not only pays interest on delayed payment but can incur penalties also, for which specific provisions are made in the Provident Fund Act as well as the ESI Act. Therefore, the Acts permit the employer to make the deposit with some delays, subject to the aforesaid consequences. Insofar as the IT Act is concerned, the assessee can get the benefit if the actual payment is made before the return is filed, as per the principle laid down by the Supreme Court in Vinay Cement (supra). 10. We find that Hon ble jurisdictional High Court has allowed deduction of payment of employee s contribution before the due date of filing of return of income after considering the decision of the Hon ble Supreme Court in the case of CIT Vs. Vinay Cement limited (supra). In the instant case, identical issue in dispute is before us. The decision of the jurisdictional High Court is binding on the Tribunal and first appellate authority working within the jurisdiction of the High Court. In our considered opinion, the finding of the learned CIT-(A) on the issue in dispu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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