NARMADA CATERERS vs. INCOME TAX OFFICER WARD-4

Facts

The assessee, Narmada Caterers, engaged in running an industrial canteen, is in appeal before the Gujarat High Court against an order of the Income Tax Appellate Tribunal (ITAT). The ITAT had reversed the order of the CIT(A) and sustained the disallowance made by the Assessing Officer (AO) under Section 43B of the Income Tax Act, 1961. The AO had disallowed Rs. 5,37,660/- as employer's contribution to PF and Rs. 4,74,092/- as employee's contribution to PF, along with Rs. 13,619/- towards ESI, for the Assessment Year 2003-04, on the grounds of delayed deposit. The CIT(A) had partly allowed the appeal, deleting the additions. The High Court admitted the appeal on substantial questions of law.

Held

The High Court addressed two questions of law. For the first question, concerning the employees' contribution to Provident Fund (Rs. 4,74,092/-), the Court held that the Tribunal was right in confirming the AO's action. The reasoning was based on the High Court's own decision in CIT vs. Gujarat State Road Transport Corporation, which held that if the employer's/employee's contribution is not deposited on the prescribed date as per Explanation to Section 36(1)(va), the disallowance is justified. For the second question, regarding the employer's contribution to Provident Fund (Rs. 5,37,660/-) and ESI (Rs. 13,619/-), the Court held that the Tribunal was not justified in confirming the disallowance. This was based on the High Court's decision in CIT vs. JMC Projects (India) Ltd., which followed the Supreme Court's ruling in CIT vs. Alom Extrusions Ltd. that the omission of the second proviso to Section 43B by the Finance Act, 2003, operated retrospectively from April 1, 1988, making the deduction allowable if the payment was made before the due date of filing the return. Consequently, the appeal was partly allowed.

Key Issues

1. Whether, on the facts and in law, the Tribunal erred in confirming the AO's action of treating Rs. 4,74,092/- (employees' PF contribution) as income under Section 2(24)(x) read with Section 36(1)(va) of the Income Tax Act, 1961, when it was deposited before the due date of furnishing the return under Section 139(1)? 2. Whether, on the facts and in law, the Tribunal erred in confirming the disallowance under Section 43B of Rs. 5,37,660/- (employer's PF contribution) and Rs. 13,619/- (ESI) paid before the due date of furnishing the return under Section 139(1)? Assessee's Contention: The assessee argued that both employee and employer contributions to PF and ESI were deposited before the due date of furnishing the return of income under Section 139(1), and therefore, the disallowance was not justified. Revenue's Contention: The revenue contended that the disallowances were justified as the contributions were not deposited within the prescribed due dates as per the relevant provisions of the Act, and the Tribunal correctly reversed the CIT(A)'s order.