Employees’ contribution toward PF, ESI allowed as deduction in previous year in which liability incurred if paid before the due date of filing of return u/s 139(1) and cannot treated as income u/s 36(1)(via)

Commissioner of Income-tax v. AIMIL Ltd, December 23, 2009 (HC Delhi)

FACTS

The case relates to the assessment year 2002-03. The respondent assessee had filed its return on 30-10-2002 declaring income at  Rs. 7,95,430. During the assessment proceedings, the Assessing Officer  (AO) found that the assessee had deposited employers’ contribution as  well as employees’ contribution towards provident fund and ESI after the  due date, as prescribed under the relevant Act/Rules. Accordingly, he made addition of Rs. 42,58,574 being employees’ contribution under section 36(1)(va) of the Act and Rs. 30,68,583 being employers’ contribution under section 43B of the Act. Felt aggrieved by this assessment order, the assessee preferred appeal before the CIT(A) who decided the same vide orders dated 15-7-2005. Though the CIT(A) accepted the contention of the assessee that if the payment is made before the due date of filing of return, no disallowance could be made in view of the provisions of section 43B, as amended vide Finance Act, 2003, he still confirmed the addition made by the Assessing Officer on the ground that no documentary proof was given to support that payment was in fact made by the assessee. The assessee filed an application under section 154 of the Act before the CIT(A) for rectification of the mistake. After having satisfied that payment had, in fact, been made, the CIT(A) rectified the mistake and deleted the addition by holding that the assessee had made the payment before the due date of filing of the return, which was a fact apparent from the record.

It was now the turn of the Revenue to feel agitated by these orders and, therefore, the Revenue approached the Income-tax Appellate Tribunal (ITAT) challenging the orders of the CIT(A). The department has, however, remained unsuccessful as the appeal preferred by the department is dismissed by the ITAT vide its impugned decision dated 31-12-2007, which is the subject-matter of appeal before us.

JUDGMENT

It also becomes clear that deletion of the 2nd proviso is treated as retrospective in nature and would not apply at all. The case is to be governed with the application of the 1st proviso.

We may only add that if 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 Act permits the employer to make the deposit with some delays, subject to the aforesaid consequences. Insofar as the Income-tax 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 Ltd.’s case.

We, thus, answer the question in favour of the assessee and against the Revenue. As a consequence, the appeals filed by the assessees stand allowed and those filed by the Revenue are dismissed.

Editor