SHRI ASEEN JINDAL,BHOPAL vs. THE ADIT-CPC, BENGALURU

The return of income filed by the assessee was processed by the Ld. AO u/s 143(1) of the Act after making a disallowance of Rs. 1,29,33,490/- on account of delayed payment of employees’ contributions to Provident Fund/Employees State Insurance [“PF/ESI”]. Being aggrieved by the disallowance so made by Ld. AO, the assesse filed appeal to Ld. CIT(A). However, the Ld. CIT(A) confirmed the disallowance and dismissed the appeal of the assessee. Again the order of Ld. CIT(A), the assessee has preferred this appeal and now before us.

The sole controversy involved in the appeal is related to the disallowance of Rs. 1,29,33,490/- u/s 36(1)(va) of the Act in respect of delayed payment of employee’s contributions to PF / ESI.

The Ld. AR submitted that the Ld. AO has made the disallowance without appreciating that though the assessee had not deposited the employees’ contributions to PF / ESI upto the due dates prescribed under the PF / ESI laws, yet the assessee had deposited the same to the respective funds within the time permitted u/s 43B of the Act i.e. upto the due date u/s 139(1) for filing the return of income and hence no disallowance is attracted in view of numerous decisions of Hon’ble High Courts favouring the assessee. Some of the decisions relied upon by Ld. AR are mentioned below:

The Ld. AR submitted that the issue is also squarely covered in favour of the assessee by decision of this very Bench of ITAT in the case of Nataraj Dal Mill, Indore vs. ACIT order dated 06.12.2021.

The Ld. AR further submitted that even otherwise the impugned disallowance is debatable in nature and outside the scope of section 143(1)(iv) of the Act invoked by the Ld. AO and therefore also not sustainable, as held by ITAT, Visakhapatnam Bench in M/s. S.V. Engineering Constructions India (P) Limited vs. DCIT (ITA No.130/Viz/2021) order dated 23.09.2021.

With these submissions, the Ld. AR prayed that the disallowance made by Ld. AO is illegal and deserves to be deleted.

Per contra, the Ld. DR relied upon the orders of lower authorities. He further submitted that in following decisions it has been held that once the employees’ contributions are paid after the due dates under PF / ESI laws, disallowance is attracted even if the assessee has made payments within the time allowed u/s 43B i.e. upto the due date u/s 139(1) for filing of return:

The Ld. DR further submitted that the Finance Act, 2021 has also inserted Explanation 2 to Section 36(1)(va) and Explanation 5 to Section 43B as under:

With these submissions, the Ld. DR argued that the Ld. AO has rightly disallowed the employees contributions to PF / ESI not paid by the assessee upto due dates under the PF / ESI laws and therefore the disallowance must be upheld.

We have considered the rival contentions and submission of both sides and also perused the relevant materials available on record. Before proceeding further we would like to mention that the assessee has deposited the impugned contributions to the PF / ESI, though after due date under PF / ESI law but within the time allowed u/s 43B i.e. upto the due date u/s 139(1) for filing return of income and there is no dispute on this point by revenue.

Regarding the decisions relied upon by both sides, we observe that there are divergent views of Hon’ble High Courts on the allowability of employees’ contributions to PF / ESI paid after due dates under the PF / ESI laws but within the time allowed u/s 43B. While the Ld. AR has relied upon various decisions favouring to the assessee, the Ld. DR has quoted the decisions against the assessee. We are also informed by both sides that there is no decision of Hon’ble jurisdictional High Court of Madhya Pradesh on this issue. In this situation, we are mindful of the decision in Vegetable Products Ltd. 88 ITR 192 wherein the Hon’ble Supreme Court has held that if two reasonable constructions of a taxing provision are possible, that construction which favours the assessee must be adopted. In view of this, the decisions favouring the assessee shall get preference over the decisions against the assessee. Being so we hold that the employees contributions paid after due date under PF / ESI law but within the time allowed u/s 43B, are allowable as deduction.

Regarding the amendments made through Finance Act, 2021, it is specifically mentioned by the legislature that the amendments are effective from 01.04.2021. Further the Memorandum explaining the Provisions in the Finance Bill, 2021 clearly prescribes thus:

It is also noteworthy that this Bench has recently decided several appeals, a few mentioned hereunder, wherein the similar disallowance made by Ld. AO has been deleted:

In view of foregoing discussion, we observe that employees’ contributions to PF / ESI paid after due date under PF / ESI laws but within the time allowed u/s 43B i.e. upto the due date u/s 139(1) for filing of return is allowable as deduction in computing taxable income of business and the assesse had rightly claimed the same. Therefore the Ld. AO as well as Ld. CIT(A) were not justified in disallowing the claim of the assessee. We therefore delete the disallowance made by Ld. AO and confirmed by Ld. CIT(A).

In the result, the appeal of assessee is allowed.