DCIT 15 (2)(2), MUMBAI vs. M/S PEARL FREIGHT SERVICES P LTD., MUMBAI

1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in making deletion of ₹1,73,45,596/- on disallowance of Employees Contribution to PF as per explanation to section 36(1)(va) read with section 2(24)(X) of the I.T. Act, 1961.

Brief facts are that the assessee company is engaged in the business of Cargo Handling and Supplying Manpower service to CFS’ and various clients on JNPT. The Assessing Officer during the course of assessment proceedings noticed from audit report i.e. Form No. 3CD column 16(b) that during the year under consideration, the assessee has received a sum of ₹1,73,45,596/- from its employees on account of Provident Funds for which provisions of Section 2(24)(X) apply, but the assessee has not deposited the same to the employees account in the relevant fund before due date as specified in the Provident Fund Act. The Assessing Office therefore, disallowed the claim of deduction as the amount of ₹ 1,73,45,596/- was deposited beyond the due date specified in the relevant Act and hence, deduction under section 36(1)(va) of the Act has not allowable. Aggrieved, assessee preferred the appeal before CIT(A), the CIT(A) relying on the decision of Hon’ble Bombay High Court in “5. We find no merit in the aforestated contention. Section 43B of the Income Tax Act 1961 was inserted in the Act with effect from 1st April 1984 by which the mercantile system of accounting with regard to tax, duty and contribution to welfare funds stood discontinued and under section 43B of the Act, it became mandatory for the Assessees to account for the aforestated items not on a mercantile basis but on a cash basis. This situation continued between 1st April 1984 and 1st April 1988 when Parliament again amended section 43B and inserted the first proviso thereto which inter alia laid down that in the context of any sum payable by the Assessee by way of tax, duty, cess or fee, if paid by the Assessee even after the closing of the accounting year but before the date of filing of the return of income, the Assessee would be entitled to the deduction under section 43B on actual payment basis and such deduction would be admissible for that accounting year. This proviso however did not apply to contributions made by the Assessees to the Labour Welfare Funds. In view thereof, by the Finance Act 1988, the second proviso came to be inserted which read as under :-

On a plain reading of the above provisos, it became ex- facie clear that the Assessees - employers were entitled to deductions only if the contributions to any fund for the welfare of the employees stood credited on or before the due date given in the relevant Act.

However, the second proviso once again created further difficulties for the Assessees - employers. Therefore, Industry once again made representations to the Ministry of Finance who, after taking cognizance of "Provided that nothing contained in this section shall apply in relation to any sum which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub- section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return."

Now before us, the learned Sr. DR controvert the findings of the CIT(A) but could not give any case laws against the order of Hon’ble Bombay High court in the case of Hindustan Organic Chemical (supra). Nothing contrary was brought to our notice by the