INDUSTRIAL SECURITY AND INTELLIGENCE INDIA P LTD.,CHENNAI vs. ACIT, CHENNAI

PER S.S.GODARA, JUDICIAL MEMBER

I.T.A.No.2547/14 :- 2 -: under section 143(3) r.w.s 147 of the Income-tax Act, 1961 (in short the ‘Act’).

The assessee is a security services provider. It had filed its 2. return on 28.10.2002 admitting income of ` 8,55,310/-. The same was ‘summarily’ processed. Thereafter, the Assessing Officer formed reasons to believe that the assessee’s income liable to be taxed had escaped assessment. This made him to reopen the aforesaid processing. A section 148 notice dated 1.2.2008 stood issued. In consequential proceedings, the Assessing Officer noticed that the assessee’s employees’ contribution towards provident fund and ESI of ` 14,19,736/- and ` 3,07,570/- respectively totalling `19,27,306/- had been remitted after due dates of the said funds but within the relevant financial year itself. He observed in re-assessment framed on 4.12.2008 that the same invites disallowance u/s 43B r.w.s 36(1)(va) and 2(24)(x) of the Act. Accordingly, the impugned disallowance/ addition stood made.

The assessee preferred an appeal. It challenged validity of 3. the impugned reopening and the impugned disallowance/addition was I.T.A.No.2547/14 :- 3 -: sought to be deleted on merits. The CIT(A) has rejected both these pleas. The lower appellate order on merits reads as under:

4.2. Disallowance of employees' contributions of PF and ESI payments: The next issue is regarding the disallowance of Employee's contribution of PF & ESI. The Assessing Officer in his order observed that the assessee has not paid the Employee's contribution of PF & ESI within the due dates specified under the respective Acts and hence disallowed the same u/s.36(i)(va). The amounts of Employee's contribution of PF & ESI so disallowed by the Assessing Officer in A.Y.2002-03 are Rs.16,19,736/- and Rs.3,07 ,570/-, respectively. The relevant portion of the order is as under: In course of the hearing, the AR of the assessee stated that the employees contribution towards PF and ESI was paid within the year and the provisions of Sec. 43B would not be attracted. It was also stated that the same should be treated as business expenses u/s 37 of the Income-tax Act, 1961. The submissions of the assessee are duly considered and cannot be accepted due to the following reasons :-

(i) As per the-pro visions of Sec 2(24)(x) of the Income- tax Act 1961, income includes 'any sum received by the assesses from his employees as contributions to any provident fund or superannuation fund or any fund set up under the provisions of the Employees' State Insurance Act 1948 (34 of 1948), or any other fund for the welfare of such employees (ii) As per the provisions of Sec36(1)(va), deductions on account of any sum received by the assessee from any of his employees to which the provisions of sub- clause (x) of clause (24) of Sec 2 apply, if such sum is credited by the assessee to the employee’s account in the relevant fund or funds on or before the due date. Explanation;- For the purposes of this clause, "due date" means the date by which the assessee is required as an employer to credit an employee's contribution to the employee's account in the relevant fund under any Act, Rule, Order or Notification issued

I.T.A.No.2547/14 :- 4 -: thereunder or under any Standing Order, Award, Contract of Service or otherwise.

In other words, assessee is eligible for deduction of the sum received by the assessee from its employees and the said sum is credited by the assessee to the employees' account in the relevant funds on or before the due date of that fund. In the instant case, the assessee has received the sum from its employees but has not credited the said amounts in the employees account of the relevant funds on or before due dates of those funds.

As the assessee has violated the provisions of sec.36(1)(va) of the Income Tax Act, 1961, by way of not depositing the employees’ contribution towards PF and ESI so collected by the assessee, in the relevant funds within the due dates of that funds, the following amounts are treated as income of the assessee in view of the provisions of Sec.2(24)(x) of the Income Tax Act, 1961 and added to the returned income of the assessee: a) Employees Contribution towards PF: 16,19,736 b) Employees Contribution towards ESI: 3,07,570 19,27,306 Addition: Rs.19,27,306/-“ 4.2.1 Normally there are two types of PF & ESI contributions, i.e. (i) Employer's contribution of PF & ESI and (ii) Employee's contribution of PF & ESI. As far as the Employer's contributions of PF & ESI are concerned, the same are governed by the provisions of sec.43B of the Act. If the amounts are paid on or before the due date to file the return of income the same becomes eligible for deduction. However this is not the issue here in the present case. 4.2.2 The dispute in the present appeals is relating to the payments of Employee's contribution of PF & ESI. As far as the Employee's contributions of PF & ESI are concerned the Same are governed by the provisions of sec.36(1)(va) of the Act and are not subjected to the provisions of sec.43B of the Act. These amounts are to be paid within the due dates specified in the respective (PF & ESI) Acts before claiming as deduction. These due dates are 15th day of the following month with a grace period of 5 days. In the instant case, since the ESI and PF contributions of the Employees (employee's contribution) have not been paid by the assessee before the due dates specified in the respective (PF

I.T.A.No.2547/14 :- 5 -:

& ESI) Acts i.e. the 15th day of the following month with a grace period of 5 days, the same is not eligible for deduction. Therefore the Assessing Officer has rightly disallowed the employee's contribution of PF and ESI, amounting to Rs.16,19,736/ and Rs.3,07,570/-, respectively. The action of the Assessing Officer is justified and confirmed.

Therefore, the assessee is in appeal.

There is also no issue that it has remitted the same in the relevant previous year and before filing of the return. We find that a co- ordinate bench of the 'tribunal' in assessee’s own case I.T.A.No.2048 & 2049/Mds/2014 for assessment years 2003-04 and 2004-05 in its order dated 31.10.2014, has relied on the decision of hon'ble Delhi high court in CIT vs Amil Ltd, 321 ITR 508 and holds that section 43B disallowance cannot be invoked in identical circumstances. The Revenue fails to point out any distinction on facts. Thus, we follow the I.T.A.No.2547/14 :- 6 -: aforesaid decision and accept the assessee’s contentions on merits. The impugned disallowance is deleted.