Applicability of amended Section 43B on employees contribution to PF

High Volt Electricals (P.) Ltd. Vs ACIT (ITAT Mumbai)

Since both the employee’s and employer’s contribution to Provident Fund was covered under the amended provision of section 43B, therefore Employees contribution to Provident fund (EPF), beyond the due date stipulated under the Provident Fund Act but before the due date of filing return of income under section 139(1) could not be disallowed by invoking section 43B of Income Tax Act, 1961.

FULL TEXT OF THE ITAT JUDGMENT

The present appeal filed by the assessee for A.Y. 2013-14 is directed against the order passed by the Commissioner of Income Tax (Appeals)-3, Thane, dated 25.04.2017, which in turn arises from the order passed by the A.O under Sec. 143(3) of the Income-tax act, 1961 (for short ‘Act’), dated 29.02.2016. The assessee assailing the order of the CIT(A) has raised before us the following grounds of appeal:-

“1. Employees Contribution to Provident Fund of Rs. 6,30,867/-

a) On the facts and in the circumstances of the case and in law, the Hon’ble CIT(A) has erred in confirming addition of Rs. 6,30,867/- payment made towards Employee Contribution to Provident Fund after specific due date.”

2. Briefly stated, the assessee company which is engaged in the business of manufacturing and repair of electrical transformers had filed its return of income for A.Y. 2013-14 on 27.08.2013, declaring total income at Rs. 2,23,68,227/-. The return of income filed by the assessee was processed as such under Sec. 143(1) of the Act. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec. 143(2).

3. During the course of assessment proceedings, it was observed by the A.O, that the assessee had deposited an amount aggregating to Rs. 6,30,867/- towards Employees Contribution to Provident fund, beyond the stipulated date contemplated under the Provident Fund Act. The assessee relying on the judgment of the Hon’ble Supreme Court in the case of CIT Vs. Alom Extrusions Ltd. (2009) 319 ITR 306 (SC), submitted before the A.O, that as the respective payments were made before the ‘due date’ applicable in its case for furnishing the ‘return of income’ under Sub-section (1) of Sec. 139 for the year under consideration in which the liability to pay such sum was incurred, thus, as per the post amended Sec. 43B of the Act, no disallowance of the aforesaid amount was called for in its hands. However, the A.O was not persuaded to subscribe to the aforesaid claim of the assessee. The A.O held a conviction that as the judgment of the Hon’ble Apex court in the case of Alom Extrusions Ltd. (supra) was rendered in context of Sec. 43B of the Act, thus the same would have no bearing as regards the disallowance of the aforesaid amount under Sec. 36(1)(va) r.w. Sec. 2(24)(x) of the Act. In order to fortify his aforesaid view, the A.O relied on the CBDT Circular No. 22/2015, dated 17.12.2015. On the basis of his aforesaid deliberations, the A.O inter alia disallowed the amount of Rs. 6,30,867/- under Sec. 36(1)(va) r.w.s. 2(24)(x) of the Act.

4. Aggrieved, the assessee carried the matter in appeal before the CIT(A). The CIT(A) after deliberating on the contentions advanced by the assessee before him, was however, not persuaded to accept the same and sustained the aforesaid disallowance.

5. The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. The Ld. Authorized Representative (for short ‘A.R’) for the assessee Shri. Virag Shah submitted, that as the assessee had deposited the amount of the employees contribution towards provident fund, before the ‘due date’ contemplated under Sec. 139(1) for filing of its return of income for the year under consideration viz. A.Y 2013-14, thus, no disallowance was called for in its hands. The Ld. A.R in order to buttress his claim that the aforesaid payments were made before the ‘due date’ of filing of the ‘return of income’ for the year under consideration, viz. A.Y. 2013-14, furnished a chart which reads as under :-

It was the contention of the Ld. A.R that the lower authorities had erred in observing that the provisions of Sec. 43B were applicable only in respect of the employers contribution to provident fund, and would not take within its sweep the deduction relating to the employees contribution to the said welfare fund, which as per them would fall within the realm of Sec. 36(1)(va) of the Act. It was submitted by the Ld. A.R that the issue under consideration was no longer res integra and is settled by the judgment of the Hon’ble High Court of Bombay in the case of CIT Central, Pune Vs. Ghatge Patil Transports Ltd. (ITA No. 1002 & 1034 of 2012; dated 14.10.2014) (Bom). It was submitted by the Ld. A.R that the Hon’ble High court of Bombay in the aforementioned case had observed that the judgment of the Hon’ble Supreme Court in the case of Alom Extrusion Ltd. (supra), rendered in context of the amendment to Sec. 43B, would be applicable to employees contribution as well as employers contribution. It was submitted by the Ld. A.R, that as the observations of the lower authorities that the post amended Sec. 43B would not be applicable to the employees contribution to provident fund, were not in conformity with the aforesaid judgment of the Hon’ble High court of jurisdiction, thus, the same could not be sustained and were liable to be vacated.

6. Per contra, the Learned Departmental Representative (for short ‘D.R’) relied on the orders of the lower authorities.

7. We have heard the authorized representatives of both the parties, perused the orders of the lower authorities and the material available on record. We find that our indulgence in the present appeal has been sought by the assessee, for adjudicating, as to whether in the backdrop of the post-amended Sec. 43B of the Act, the lower authorities were justified in disallowing the amount of the employees contribution to provident fund that was deposited by the assessee beyond the stipulated period contemplated under the Provident Fund act, but before the ‘due date’ of filing of its return of income under Sec. 139(1) of the Act. We find that it is an admitted fact, that though the assessee had deposited the employees contribution to provident fund beyond the time period allowed under the PF act, however, the said amounts were paid before the ‘due date’ of filing of the return of income by the assessee under Sec. 139(1) of the Act. We are unable to accept the observations of the lower authorities, that the provisions of Sec. 43B would not be applicable as regards the employees contribution to provident fund, and the same would continue to be governed by Sec. 36(1)(va) r.w.s. 2(24)(x) of the Act. We find that the issue under consideration is squarely covered by the judgment of the Hon’ble High Court of Bombay in the case of CIT Central, Pune Vs. Ghatge Patil Transports Ltd. (ITA No. 1002 & 1034 of 2012; dated 14.10.2014) (Bom). The Hon’ble High Court in its aforesaid order had clearly observed that both employees and employers contribution would be covered under the amendment to Sec. 43B of the Act and the Alom Extrusions (supra) judgment. We thus, are of the considered view that the disallowance of Rs. 6,30,867/- upheld by the CIT(A), not being in conformity with the aforesaid judgment of the Hon’ble High Court cannot be sustained and is hereby vacated.

8. The disallowance of Rs. 6,30,867/- is deleted, and the order of the CIT(A) to the extent sustaining the said disallowance is set aside.

9. The appeal of the assessee is allowed.

Order pronounced in the open court on 26/09/2018