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Income Tax Appellate Tribunal, Mumbai “F” Bench, Mumbai.
Before: Justice C.V. Bhadang & Shri B.R. Baskaran (AM)
The assessee has filed this appeal challenging the order dated 30-11- 2021 passed by Ld CIT(A), NFAC, Delhi and it relates to the assessment year 2013-14. The only issue urged in this appeal is related to the rejection of claim for allowing employees contribution to PF/ESI u/s 36(1)(va) of the Act.
This appeal was initially disposed of by the Tribunal, vide its order dated 15-07-2022, wherein the claim for deduction u/s 36(1)(va) of the Act was allowed by following decision rendered by a co-ordinate bench. Subsequently, the revenue filed a miscellaneous application seeking recall of the above said order in view of the decision rendered by Hon’ble Supreme Court in the case of Checkmate Services P Ltd (Appeal no.2833 of 2016 dated 12-10-2022). The above said miscellaneous application filed by the revenue was numbered as MA No. 370/Mum/2023. While disposing the above said
2 Vansh Nimay Infraprojects Limited miscellaneous application on 18-09-2023, the Tribunal recalled its earlier order dated 15.07.2022 passed in this appeal. Accordingly, this appeal is posted before us again.
The only issue urged in this appeal relates to the deduction of employees contribution to PF/ESI paid during the year. The assessing officer did not allow deduction of those payments, which had been made beyond the due date prescribed in the respective Statutes in terms of sec. 36(1)(va) of the Act. The Ld CIT(A) also confirmed the same and hence the assessee has filed this appeal.
The Ld A.R submitted that the due date for making payment of employees contribution of PF is 15th day of the succeeding month. However, as per para 5.1.3 of Manual of Accounting Procedure (Part I General), the employers are allowed a grace period of 5 days to remit the contribution. The Ld A.R submitted that above said grace period was withdrawn from February, 2016 only. In support of the above submissions, the Ld A.R furnished a letter No. WSU/9(1)2013/Settlement dated 08th January, 2016 issued by Employees Provident Fund Organisation. The Ld A.R submitted that the Hon’ble Supreme Court has also taken note of above said letter in paragraph 7 of the order passed in the case of Checkmate Services P Ltd (supra). The Ld A.R submitted that the year under consideration falls prior to the month of withdrawal of grace period. Accordingly, she submitted that the payments made within the grace period should not be disallowed u/s 36(1)(va) of the Act. The Ld A.R submitted that the following payments have been made within the grace period:- MonthAmount Date of Payment September, 2012 8,88,213 17th October, 2012 October, 2012 9,77,996 16th November, 2012 November, 2012 9,79,070 18th December, 2012 January, 2013 9,75,288 16th February, 2013
3 Vansh Nimay Infraprojects Limited Accordingly, the Ld A.R prayed that the AO may be directed to allow deduction of above said amounts.
The Ld D.R submitted that the details of date of payments furnished by the assessee require verification at the end of AO. Accordingly, the Ld D.R prayed that the above said claim of the assessee may be restored to the file of AO for examining it in accordance with law.
We heard rival contentions and perused the record. As noticed earlier, the Hon’ble Supreme Court has held in the case of Checkmate Services P Ltd (supra) that the deduction of employees contribution of PF/ESI is allowable u/s 36(1)(va) of the Act only if the payments have been made within the due dates prescribed in the respective Statutes. It is the claim of the assessee that the Employees Provident Fund Organisation has allowed grace period of further five days for remitting the payment and the said concession has been withdrawn from February, 2016 only. Since the year under consideration falls prior to the month of withdrawal, it is prayed that the payments made within the grace period should be allowed u/s 36(1)(va) of the Act.
We notice that the question as to whether the payments made within the grace period can be allowed as a deduction u/s 36(1)(va) & 43B of the Act was examined by Hon’ble Delhi High Court in the case of CIT vs. Bharat Hotels Ltd (ITA No.271/2005 dated 06-09-2018)(Delhi), wherein it was held that the payments made within grace period should be allowed. For the sake of convenience, we extract below the question posed before the Hon’ble Delhi High Court:- (2) Whether the payment of provident fund and employees state insurance dues deposited by the Assessee within the grace period would qualify for deduction under Section 43B of the Income Tax Act, 1961? It was answered as under by Hon’ble Delhi High Court :- Question No. 2
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7. The issue here concerns the interplay of Section 2(24)(x) of the Act read with Section 36(1)(va) of the Act alongside provisions of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (especially Regulation 38 of the Employees’ Provident Funds Scheme, 1952) and the provisions of the Employees‟State Insurance Act, 1948. The AO had brought to tax amounts which were deducted by the employer/assessee from the salaries and wages payable to its employees, as part of their contributions. It is not in dispute that the employer‟s right to claim deductions under the main part of Section 43-B of the Act is not an issue. The question the AO had to then decide was whether the amounts deducted from the salaries of the employees which had to be deposited within the stipulated time (in terms of notification/circular dated 19.03.1964 which was modified on 24.10.1973), as far as the EPF contribution went and the period of three weeks as far as the ESI contributions went. The AO made a tabular analysis with respect to the contributions deducted and actually deposited. The cumulative effect of notifications under the Employees’ Provident Funds Act, 1952 and the Employees State Insurance Act, 1948 was that in respect of the EPF Scheme contributions the deductions were to be deposited within 15 days of the succeeding wage period with a grace period of 5 days; for ESI contributions the deposit with the concerned statutory authority had to be made within three weeks of the succeeding wage month/period. The CIT in this case confirmed the additions –made by the AO based on the entire amounts that were disallowed. The ITAT however granted complete relief.
8. Having regard to the specific provisions of the Employees’ Provident Funds Act and ESI Act as well as the concerned notifications which granted a grace period of 5 days (which appears to have been late withdrawn recently on 08.01.2016), we are of the opinion that the ITAT’s decision in this case was not correct. The assessee undoubtedly was entitled to claim the benefit and properly treat such amounts as having been duly deposited, which were in fact deposited within the period prescribed (i.e. 15 + 5 days in the case of EPF and 21 days + any other grace period in terms of the extent notification). As far as the amounts constituting deductions from employees’ salaries towards their contributions, which were made beyond such stipulated period, obviously the assessee was not entitled to claim the deduction from its returns.
9. In view of this discussion, the Revenue’s appeal is partly allowed. The AO is directed to examine the contributions made with reference to the dates when they were actually made and grant relief to such of them which qualified for such relief in terms of the prevailing provisions and notifications. We also clarify that the assessee would be entitled to deduction in terms of Section 36(1)(va) of the Act.
Following the above said decision of Hon’ble Delhi High Court, we hold that the payments of employees contribution of PF within the grace period of five days granted beyond the due date is allowable as deduction u/s 36(1)(va) of the Act. However, as submitted by Ld D.R, the details of payments require
5 Vansh Nimay Infraprojects Limited examination at the end of AO. Accordingly, we set aside the order passed by Ld CIT(A) in respect of above said four payments and restore them to the file of AO for examining the dates of payments. We direct the AO to allow deduction u/s 36(1)(va) of the Act of those payments which have been paid within the grace period in respect of PF payment. Disallowance confirmed by Ld CIT(A) in respect of remaining payments of PF/ESI do not require interference.
In the result, the appeal filed by the assessee is partly allowed. Order pronounced in on 31.10.2023.