M/S SAM STREAMLINE SYSTEMS P LTD,INDORE vs. THE ITO 5 (1), INDORE

These appeals are filed by different assessees against the respective orders passed by the learned Commissioner of Income-Tax (Appeal) [“Ld. CIT(A)”] as per the following details:

The registry has informed that the Appeal at S.No. 2 was required to be filed by 08.03.2022 but the same was actually filed on 23.03.2022, after a delay of 15 days. The Ld. AR prayed that the delay has occurred due to Covid-19 Pandemic. The Ld. AR further placed reliance on the order of Hon’ble Supreme Court in Suo Motu Writ Petition (C) No. 3 of 2020 read with Misc. Applications, by which suo motu extension of the limitation-period for filing of appeals w.e.f. 15.03.2020 under all laws has been granted and hence there is no delay in fact. We confronted the Ld. DR who agreed to the submission of Ld. AR. In view of this, the appeal is proceeded with for hearing, there being no delay.

As the issue involved in all these appeals is same except the difference of amounts involved, we proceed to decide all these by this common order. & others Palash Badole & others Page 3 of 7 4. The return of income filed by assessee was processed by the Ld. AO u/s 143(1) of the Act after making disallowance on account of delayed payment of employees’ contributions to Provident Fund/Employees State Insurance (“PF/ESI”). The assessee challenged these disallowances in 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 appeal before us.

The sole controversy involved is related to the disallowance 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:

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:

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 & others Palash Badole & others Page 6 of 7 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, these appeals are allowed.