Section 36(1)(va) Vs. Section 43-B

If the assessee fails to deposit the PF, ESIC etc Contribution before the due dates as per the respective Acts. Effect of Section 43B on unpaid liability towards contributions to any provident fund or superannuation fund or any fund set up under the provisions of the Employees’ State Insurance Act, 1948, or any other fund for the welfare of such employees.

PF, ESIC etc Contribution- Income u/s 2(24)(x)

The definition of Income u/s 2(24)(x) includes any sum received by the assessee 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, or any other fund for the welfare of such employees.

Deduction from Income of contribution to PF, ESCI etc u/s 36(1)(va).

However a deduction from the amount of income received from employees as contributions to any provident fund or superannuation fund etc. is provided u/s 36(1)(va). According to this section any sum received by the assessee from any of his employees to which the provisions of section 2(24)(x) will be allowed as deduction, 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. “Due date” here 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 thereunder or under any standing order, award, contract of service or otherwise.

The due date under employee welfare funds is 15th day of the month following the month in respect of which the contribution was received. For example if the contribution was received for the month of April then the due date of payment will be 15th May. If payment is not made by the due date then the entire amount of contribution paid later than 15th of the next month shall not be deducted as expense 36(1)(va).

However Certain deductions are allowed u/s 43B on actual payment such that the 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 section 139(1) are also allowed as deduction.

Section 43B : Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of-

(a) any sum payable by the assessee by way of tax, duty, cess or fee, by whatever name called, under any law for the time being in force, or]

(b) any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees,

(c)…………..

(d)………….

shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him :

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.

Thus Section 43B is a non-obstante clause as it starts with the word “Notwithstanding” which clearly mean that the provisions of section 43B shall over ride even if, anything otherwise is contained in any other provision of Act 1961.

In the light of the provisions of section 36(1)(va) and section 43B, let us analyze the allowability or otherwise of the above liabilities:

Section 36(1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28

(va) any sum received by the assessee from any of his employees to which the provisions of sub-clause (x) of clause (24) of section 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 thereunder or under any standing order, award, contract of service or otherwise;

Thus the due date for depositing the employees’ contribution is 15th of the month next to the month for which the contribution was collected.

However u/s 43B(b) the due date for depositing the employer’s contribution is the due date for filing of the return of income u/s 139(1) , generally 30th September.

Upto the introduction of Finance Bill 2003, the employers’ contribution was also required to be deposited alongwith employees’ contribution with the prescribed authorities by due dates under Welfare Acts to be eligible to claim deduction. The Finance Act 2003 deleted this provision such that employers’ contribution could now be made u/s 43B(b) before the due date u/s 139(1) i.e. due date for filing of the return for getting the deduction.

The Word Contributions has not been refined under the Income Tax Act. But as per the provisions The Employees’ Provident Funds Scheme, 1952, section 29 & 30 it is provided that

(1) The contribution payable by the employee under the Scheme, shall be equal to the contribution payable by the employer in respect of such employee;

(2) The employer shall, in the first instance, pay both the contribution payable by himself (in this Scheme referred to as the employer’s contribution) and also, on behalf of the member employed by him directly or by or through a contractor, the contribution payable by such member (in this Scheme referred to as the member’s contribution).

(3) The amount of a member’s contribution paid by the employer or a contractor shall, notwithstanding the provisions in this scheme or any law for the time being in force or any contract to the contrary, be recoverable by means of deduction from the wages of the member and not otherwise. 

It therefore is clear that the employer has  to in the first instance, pay both the contributions payable and thereafter recover the same by means of deduction from the wages of the member. If this is the case then the total contribution will be covered under the provision of section 43B(b) and therefore allowable as deduction on payment basis, if paid before the due date u/s 139(1).

See the example

(1) Employees’ Contribution u/s 36(1)(va)
April-18 15000 15-May-18 16-05-18 Disallowed
May 25000 15-June-18 17-06-18 Disallowed
June 20000 15-July-18 18-06-18 Disallowed
July 20000 15-August-18 15-08-18 Allowed
August 25000 15-September-18 17-09-18 Disallowed
September 30000 15-October-18 18-10-18 Disallowed
October 25000 15-November-18 15-11-18 Allowed
November 35000 15-December-18 25-12-18 Disallowed
December 20000 15-January-19 16-01-19 Disallowed
January 25000 15-February-19 18-02-19 Disallowed
February 25000 15-March-19 25-03-19 Disallowed
March-19 30000 15-April-19 16-04-19 Disallowed
295000  
In the above case a sum of 45000/- only will be allowed, having been paid by the due date under PF Act. The balance of Rs. 250000/- will never be allowed though actually paid with a little bit delay of 1 to 10 days.

(2)  Employer’s Contribution u/s 43B(b)
April-18 15000 15-May-18 30-06-18 Allowed
May 25000 15-June-18 30-07-18 Allowed
June 20000 15-July-18 31-08-18 Allowed
July 20000 15-August-18 31-12-18 Allowed
August 25000 15-September-18 31-12-18 Allowed
September 30000 15-October-18 31-12-18 Allowed
October 25000 15-November-18 31-12-18 Allowed
November 35000 15-December-18 31-12-18 Allowed
December 20000 15-January-19 31-03-19 Allowed
January 25000 15-February-19 30-09-19 Allowed
February 25000 15-March-19 30-09-19 Allowed
March-19 30000 15-April-19 30-09-19 Allowed
295000  
In the above case full sum of Rs. 295000/- will be allowed, having been paid by the due date under section 139(1) of the Income Tax Act.

Moreover the above facts are also required to be reported in clause 20(b) of the Form 3CD as under:

Annexure to Clause 20(b) of Form 3CD
Serial No. Nature of Fund Sum Received from Employees Due Date for Payment The actual amount paid The actual date of payment to the concerned authorities

If any of the deposit is outside the due date of 15th of next month then that amount shall never be allowed as deduction under section 36(1)(va) even though it might have been deposited with a delay of just 1 day. There is no provision in the Act under which this amount can be allowed as deduction in any year thereafter. This provision is very harsh and therefore litigation is very common on the allowability of this sum as deduction either u/s 36(1)(va) or u/s 43B(b) of the Act.

Note of Caution:

It is therefore very important for each assessee to know that if he defaults in deposit of the PF, ESIC etc contribution received from employees as per the due date as provided in the respective PF/ESIC etc then even a delay of 1 day in depositing it may cause the entire amount in default to be disallowed once for all, never ever to be allowed again on actual payment of the same after a delay of even 1 day. This unpaid liability is not covered by sec 43B(b). Only the contribution of the employer is covered by sec 43B(b) and which can be paid even upto the date of filing of the return u/s 139(1).

However the law as propounded by case laws is different in different States. So far as the State of Maharashtra is concerned, the jurisdictional Bombay High Court allows the deduction of the contribution from the employers & employees both if both are paid on or before the due date of filing of return u/s 139(1) as provided u/s 43B(b). The Tax Auditor must also be careful while filling Form 3CD item no 20(b) to weed out such contributions paid after due date i.e. the 15th of the next month and take curative steps immediately.

Case Laws on the allowability of deduction when paid after the due date i.e. Due date under the respective Acts or due date u/s 139(1). A discussion on it follows:

GUJARAT HIGH COURT [2014] 366 ITR 170 : 26th December 2013

COMMISSIONER OF INCOME TAX II VERSUS GUJARAT STATE ROAD TRANSPORT CORPORATION

Employees’ contribution to PF and ESI assessee shall not be entitled to deduction in computing the income if such sum is not credited by the assessee to the employees’ account in the relevant fund or funds on or before the due date as per explanation to section 36(1)(va) of the Act – Additions confirmed

– Decided against the assesse

GUJARAT HIGH COURT : October 15, 2018

M/S CHECKMATE FACILITY AND ELECTRONIC SOLUTIONS PVT LTD. VERSUS DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-1

Disallowance u/s 2(24)(x) r.w.s. 36(1)(va) Held that:- Provision requires an employer before paying the employee his wages to deduct the employee’s contribution along with the employer’s own contribution as fixed by the Government. It is further required that he shall within fifteen days of the close of every month pay the same to the fund such contribution and administrative charges. If not so paid then no deduction 36(1)(va)

Decided against assessee

KARNATAKA HIGH COURT: February 4, 2014 [2014] 366 ITR 408 (Kar)

M/S ESSAE TERAOKA PVT LTD VERSUS DEPUTY COMMISSIONER OF INCOME-TAX

Contribution” used in Section 43-B(b) of the IT Act means the contribution of the employer and the employee. That being so, contribution made on or before the due date under section 139(1) the employer is entitled for deduction.

Decided in favour of Assessee.

KARNATAKA HIGH COURT : [2008] 298 ITR 141 (Karn) : July 3, 2007

COMMISSIONER OF INCOME-TAX VERSUS SABARI ENTERPRISES

36(1)(va) clear that amounts actually paid on or before the due date of filing return u/s 139 are allowable deductions – so contributions by assessee to P.F. & Employees State Insurance are deductible even if made beyond period prescribed u/s 36(1)(va) but before the due date for furnishing return.

Decided in favor of the assessee

CALCUTTA HIGH COURT: August 8, 2018

PEERLESS GENERAL FINANCE AND INVESTMENT CO. VERSUS COMMISSIONER OF INCOME TAX, KOLKATA – 1

By using the expression liability incurred the legislature permitted the assessee to deposit the money with the return for the year in which the liability was incurred irrespective of the fact whether payment was made or not in that previous year.

In Commissioner of Income-Tax, Circle –I, Kolkata Vs. Vijay Shree Ltd. CALCUTTA HIGH COURT has allowed the deduction on provident fund contribution made beyond the due date for its deposit but made before the due date for filing the assessee’s return for the previous year when the liability was incurred.

Decided in favour of assessee.

RAJASTHAN HIGH COURT: [2014] 363 ITR 307 : January 6, 2014

COMMISSIONER OF INCOME TAX, JAIPUR-II VERSUS JAIPUR VIDYUT VITRAN NIGAM LTD AND RAJASTHAN RAJYA VIDYUT UTPADAN NIGAM LTD

Payment of GPF, CPF and ESI beyond due date – If the amount has been deposited on or before the due date u/s 139(1) then the amount cannot be disallowed under Section 43B of the I.T. Act or under Section 36(1)(va) of the Act

Decided in favour of the assessee.

RAJASTHAN HIGH COURT : [2014] 366 ITR 163 : May 13, 2013

COMMISSIONER OF INCOME TAX, UDAIPUR VERSUS M/S. UDAIPUR DUGDH UTPADAK SAHAKARI SANGH LIMITED, UDAIPUR

Payment made to PF in ESI fund – amount to be added u/s 36(1)(va) r.w. section 2(24)(x) or not – Held that:- The CIT(A) as well as Tribunal was rightly of the view that where the payments on account of contribution to the provident fund, employees’ State insurance, etc., are made within the due date of filing the return, such deductions are allowable – the provident fund contribution and the employees’ State insurance was deposited before the due date of filing the return – Following the decision in CIT v. AIMIL Ltd. [DELHI HIGH COURT] – if the employees’ contribution is not deposited by the due date prescribed under the relevant Acts and is deposited late, the employer not only pays interest on delayed payment but can incur penalties also, for which specific provisions are made in the Provident Funds Act as well as the Employees’ State Insurance Act –

Decided in favour of assessee

RAJASTHAN HIGH COURT [2014] 363 ITR 70 : January 6, 2014

COMMISSIONER OF INCOME TAX VERSUS M/S. STATE BANK OF BIKANER & JAIPUR AND JAIPUR VIDYUT VITARAN NIGAM LTD.

Relying upon Allied Motors (P) Ltd. vs. CIT [Supreme Court] – the legislature brought in the statute Section 43(B)(b) to curb the activities of such tax payers who did not discharge their statutory liability of payment of dues – The amount actually paid by the assessee on or before the due date u/s 139(1) can be claimed by the assessee for deduction out of their gross total income – Sec.43B starts with a notwithstanding clause & would thus override Sec.36(1)(va). Thus, where the PF and/or EPF, CPF, GPF etc., if paid after the due date under respective Act but before the date u/s 139(1) cannot be disallowed u/s 43B or u/s 36(1)(va) of the IT Act

Decided in favour of the assessee

RAJASTHAN HIGH COURT : August 4, 2016

COMMISSIONER OF INCOME TAX, JAIPUR-2 VERSUS M/S. RAJASTHAN STATE BEVERAGES CORPN. LTD.

Deduction of claim on account of Provident Fund (PF) and ESI. The court allowed the claim of the assessee, in so far as payment of PF & ESI etc. is concerned, on the finding of fact that the amounts in question were deposited on or before the due date of furnishing of the return of income and taking in consideration judgment of this Court in Commissioner of Income Tax Vs. State Bank of Bikaner & Jaipur and Commissioner of Income Tax Vs. Jaipur Vidyut Vitaran Nigam Ltd. (RAJASTHAN HIGH COURT).

Decided in favour of assessee

KERALA HIGH COURT : [2015] 378 ITR 443 : September 8, 2015

THE COMMISSIONER OF INCOME TAX, COCHIN VERSUS M/S MERCHEM LIMITED

The distinction drawn to credit the amount of the employer and the employee was with a clear objective and there is no illegality or other legal infirmity in classifying the contributions of employees and employer in the matter of crediting the same to the appropriate statutory authorities.

Considering section 36(1)(va) of the Income Tax Act as it stands, with respect to any sum received by the assessee from any of his employees to which the provisions of clause (x) of sub-section (24) of section 2 applies, assessee shall not be entitled to deduction of such amount in computing the income referred to in section 28 if such sum is not credited by the assessee to the employees’ account in the relevant fund or funds on or before the due date as per explanation to section 36(1)(va) of the Act.

Decided against the assessee

BOMBAY HIGH COURT: [2014] 368 ITR 749 (Bom) : October 14, 2014

THE COMMISSIONER OF INCOME TAX VERSUS GHATGE PATIL TRANSPORTS LTD.

The employer assessee would be entitled to deduction only if the contribution to the employee’s welfare fund stood credited on or before the due date and not otherwise – following the decision in Commissioner of Income Tax V/s. Alom Extrusions Ltd. [SUPREME COURT] – both employees’ and employer’s contributions are covered under the amendment to Section 43B of I.T. Act – the Tribunal was right in holding that payments are subject to benefits of Section 43B –

Decided in favour of the assessee

DELHI HIGH COURT: [2010] 321 ITR 508 (Delhi): December 23, 2009

COMMISSIONER OF INCOME TAX VERSUS AIMIL LIMITED, NIRMALA SWAMI, SPEARHEAD DIGITAL STUDIO, M/S. NET 4 INDIA LTD., MODIPON LTD., & M/S. EKTA AGRO INDUSTRIES LTD.,

If the employees’ contribution is not deposited by the due date prescribed under the relevant Acts and is deposited late, the employer not only pays interest on delayed payment but can incur penalties also, for which specific provisions are made in the Provident Fund Act as well as the ESI Act. Therefore, the Act permits the employer to make the deposit with some delays, subject to the aforesaid consequences. Insofar as the Income Tax Act is concerned, the assessee can get the benefit if the actual payment is made before the return is filed, as per the principle laid down by the Supreme Court in Vinay Cement –

Decided in favor of assessee

SUPREME COURT : [2009] 319 ITR 306 (SC): November 25, 2009

COMMISSIONER OF INCOME TAX VERSUS M/S. ALOM EXTRUSIONS LIMITED

Amendment to section 43B – omission [deletion] of the second proviso to Section 43-B – whether retrospective in nature – regarding restriction of deduction in respect of any sum payable by an employer by way of contribution to provident fund/superannuation fund or any other fund for the welfare of employees, unless it stood paid within the specified due date – held that – the second proviso resulted in implementation problems, which have been mentioned hereinabove, and which resulted in the enactment of Finance Act, 2003, deleting the second proviso and bringing about uniformity in the first proviso by equating tax, duty, cess and fee with contributions to welfare funds. Once this uniformity is brought about in the first proviso, then, in our view, the Finance Act, 2003, which is made applicable by the Parliament only with effect from 1st April, 2004, would become curative in nature, hence, it would apply retrospectively with effect from 1st April, 1988 – Decision in Allied Motors (P) Limited vs. Commissioner of Income Tax, SUPREME Court], followed.

In favour of the assessee

SUPREME COURT  [1997] 224 ITR 677 (SC) .- March 10, 1997

ALLIED MOTORS PRIVATE LIMITED VERSUS COMMISSIONER OF INCOME-TAX

Assessee’s claim that the first proviso to section 43B by the Finance Act, 1987 was applicable retrospectively, is accepted – sales-tax collected by the assessee and paid after the end of the relevant previous, but within the time allowed, is to be allowed u/s 43B:

In favour of the assessee

SC ORDER: [2009] 313 ITR (St.) 1 : March 7, 2007

CIT VERSUS VINAY CEMENT LTD.

Claim u/s 43B – Contribution to provident fund – Held that:- assessee was entitled to claim the benefit in Sec.43-B for that period particularly in view of the fact that he has contributed to provident fund before filing of the return –

Decided in favor of assessee

SC ORDER : July 4, 2017

PRINCIPAL COMMISSIONER OF INCOME-TAX, JAIPUR VERSUS M/S RAJASTHAN STATE BEVERAGES CORPN. LTD

Deduction of claim on account of Provident Fund (PF) and ESI – HC allowed the claim. Held that:- We do not find any merit in this petition. The special leave petition is, accordingly, dismissed.

Decided in favour of Assessee.

SUPREME COURT OF INDIA : [2009] 313 ITR (St.) 1 : March 7, 2007

CIT VERSUS VINAY CEMENT LTD.

Claim u/s 43B – Contribution to provident fund – Held that:- assessee was entitled to claim the benefit in Sec.43-B for that period particularly in view of the fact that he has contributed to provident fund before filing of the return –

Decided in favour of assessee

GAUHATI HIGH COURT : [2006] 284 ITR 619 : June 26, 2006

COMMISSIONER OF INCOME-TAX VERSUS GEORGE WILLIAMSON (ASSAM) LIMITED.

Deposit of contributions made towards provident fund, etc., after the close of the accounting period but before the due date for filling of the return of income , the assessees are entitled to relief under section 43B(b) –

The contributions towards provident fund, etc., paid before the filing of the return by the assessees are entitled for the deduction –

Decided in favor of assessee

ALLAHABAD HIGH COURT : December 21, 2016

SAGUN FOUNDRY PRIVATE LIMITED VERSUS COMMISSIONER OF INCOME TAX, KANPUR

By way of First Proviso Section 43-B, an incentive/relaxation was sought to be given in respect of tax, duty, cess or fee by explicitly stating that if such tax duty cess or fee is paid before the date of filing of the return under Act 1961, Assessee would then be entitled to deduction. This relaxation/incentive was restricted only to tax, duty, cess and fee. It did not apply to contributions to labour welfare funds. The reason appears to be that the employer should not sit on the collected contributions and deprive workmen of the rightful benefits under social welfare legislations by delaying payment of contributions to the welfare funds. In the result when contribution had been paid, prior to filing of return under Section 139(1), Assessee/employer would be entitled for deduction.

Looking to the objective and purpose of insertion of Section 43B it applied to both the contributions. It also observed clearly that Section 43B is with a non-obstante clause and therefore over ride even if, anything otherwise is contained in Section 36 or any provision of Act 1961.

Decided in favour of Assessee.

MADRAS HIGH COURT : October 23, 2018 

M/S. UNIFAC MANAGEMENT SERVICES (INDIA) PRIVATE LTD. VERSUS THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATION CIRCLE 3 (2) , CHENNAI

The scope of Section 43B and Section 36(1)(va) are different and thus, there is no question of reading both provisions together to consider as to whether the assessee is entitled to deduction in respect of the sum belatedly paid towards such contribution, especially when such sum is, admittedly, a sum received by the assessee/employer from his employee. Therefore, for considering such question, application of Section 36(1)(va) r.w.s. 2(24)(x) alone is the proper course and any other interpretation would only defeat the object and scope of both the provisions viz., 43B and 36(1)(va).

Accordingly, the writ petition fails and the same is dismissed.

Decided against the assessee

KERALA HIGH COURT : [2015] 378 ITR 443 : September 8, 2015

THE COMMISSIONER OF INCOME TAX, COCHIN VERSUS M/S MERCHEM LIMITED

If the intention of a particular provision of a statute can be gathered from the language used by the legislation, then we are bound to abide by the language used therein in order to ascertain the intention. We are also of the opinion that there was a clear logic behind Sec.36(1)(va) and Explanation thereto since the Legislature intended that the amount received towards contribution of the employee was money belonging to the employee and the assessee was not entitled to utilise the said fund and enrich himself. So also, both the provisions will co-exist harmoniously without disturbing each other. Therefore, the distinction drawn to credit the amount of the employer and the employee was with a clear objective and there is no illegality or other legal infirmity in classifying the contributions of employees and employer in the matter of crediting the same to the appropriate statutory authorities.

Considering section 36(1)(va) of the Income Tax Act, assessee shall not be entitled to deduction of such amount in computing the income referred to in section 28 if such sum is not credited by the assessee to the employees’ account in the relevant fund or funds on or before the due date as per explanation to section 36(1)(va) of the Act –

Decided against the assessee

PATNA HIGH COURT : [2017] 393 ITR 386 March 16, 2016

M/S BIHAR STATE WAREHOUSING CORPORATION LTD. VERSUS COMMISSIONER OF INCOME TAX-1, DY. COMMISSIONER OF INCOME TAX

In view of the proposition laid down by the Supreme Court in the case of CIT Vs. Vinay Cements Limited the admitted position being that the aforesaid amounts were credited after the due dates of payment under the relevant Acts but much before the date of filing of the return under the Income Tax Act, the assessee would clearly be entitled to the deletion of the addition.

Decided in favour of assessee

PATNA HIGH COURT: March 31, 2015

COMMISSIONER OF INCOME TAX-1, PATNA, ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-II, PATNA VERSUS ALKEN LABORATORIES LTD, EXHIBITION ROAD, PATNA

Delayed payment of employer’s contribution under Section 43B the tribunal has relied upon a decision of the Supreme Court in the case of CIT Vs. Vinay Cements Limited which decision has been reiterated in the case of Commissioner of Income Tax Vs. Alom Extrusions Ltd.: (SUPREME COURT). –

Decided in favour of assessee.

MADHYA PRADESH HIGH COURT : [2010] 326 ITR 457 (MP) November 16, 2007

BS. PATEL VERSUS DEPUTY COMMISSIONER OF INCOME-TAX (ASSESSMENT)

Non compliance with the second proviso to section 43B of the Act would result in disallowance so far as these payments were concerned. The assessee failed to ensure compliance by the depositing the amount before the due date, the benefit of section 43B was rightly denied by the Assessing Officer and Tribunal.

Decided against assessee

PUNJAB AND HARYANA HIGH COURT September 21, 2015

COMMISSIONER OF INCOME TAX, FARIDABAD VERSUS M/S LAKHANI RUBBER UDYOG P. LIMITED

Addition made on account of late deposit of employees’ contribution to PF – ITAT deleted the addition – Held that:- Issue covered against the revenue by judgment of the Apex Court in Commissioner of Income Tax vs. Alom Extrusions Limited, (SUPREME COURT)

Decided on favour of assessee.

S.N. High Courts Judgment
1 Delhi High Court Favour of assessee
2 Punjab & Haryana High Court Favour of assessee
3 Rajasthan High Court Favour of assessee
4 Madhya Pradesh High Court Against the assessee
5 Allahabad High Court Favour of assessee
6 Gujarat High Court Against the assessee
7 Bombay High Court Favour of assessee
8 Karnataka High Court Favour of assessee
9 Kerala High Court Against the assessee
10 Madras High Court Against the assessee
11 Patna High Court Favour of assessee
12 Calcutta High Court Favour of assessee
13 Guwahati High Court Favour of assessee

Some of the Judgments of the ITAT

ITAT VISAKHAPATNAM : January 30, 2019

THE ASST. COMMISSIONER OF INCOME TAX CIRCLE-5 (1) VISAKHAPATNAM VERSUS N NAGESWARA RAO & CO. AND (VICE-VERSA) Section 43B and section 36(1)(va) –

Employees contribution to PF required to be allowed even if the same is paid before the due date of filing the return u/s 139(1) of the Act.

Decided in favour of assessee.

ITAT VISAKHAPATNAM: September 20, 2017

ACIT CIRCLE-3 (1) VISAKHAPATNAM VERSUS M/S EASTERN POWER DISTRIBUTION COMPANY OF AP LTD. AND VICE- VERSUS : Section 43B & Section 36(1)(va) r.w.s.2(24)(x) –

There is no distinction between employees’ and employer contribution to PF, and if the total contribution is deposited on or before the due date of furnishing return of income u/s 139(1) of the Act, then no disallowance can be made towards employees’ contribution to provident fund.

Decided in favour of assessee.

ITAT HYDERABAD: [2015] 40 ITR (Trib) 470 (ITAT [Hydrabad]: June 3, 2015

TETRA SOFT (INDIA) PVT. LTD. VERSUS ASST. COMMISSIONER OF INCOME-TAX, CIRCLE – 2 (3) , HYDERABAD

The assessee remitted the employees’ contribution to provident fund not within the due date as prescribed under the PF Act but remitted the same  within the due date u/s 139(1). Therefore, in view of the provisions of section 43B the amount cannot be disallowed.

Decided in favour of assessee.

ITAT HYDERABAD : November 29, 2018

DY. COMMISSIONER OF INCOME-TAX, CIRCLE – 1 (1) , HYDERABAD VERSUS ANDHRA PRABHA PUBLICATIONS LTD., HYDERABAD.

It is a settled position of law that though the assessee paid the contributions towards ESIC and PF beyond the due date, but, before filing of the return of income, no disallowance can be made in this regard.

Decided in favour of the assessee

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14 Comments

  1. Rajesh Singhal says:

    I had deposited PF on 13 th of next month and amount was deducted from my account but after four days amount credited in my account and i further depoited on same date. Let me know is it allowed in deduction or not.

  2. DD Bansal says:

    I recently came across an adverse judgement of Delhi High Court in the case of CIT (Delhi) Vs. Bharat Hotels Limited dt. 06/09/2018. Strangely, the judgement allows delays within grace period and disallows the remaining. The CPC is sending adjustment notices in all cases where Tax Audit Report points out any delays in PF / ESI payments for the AY 2019-20. It is quiet a unfortunate situation as they are not accepting assessee’s arguments pointing out references to various court decisions.

    1. CA Lalit Munoyat says:

      ITAT CHENNAI : Dated.- November 25, 2019
      Deduction of P.F. and E.S.I. contribution of Employees – Delay in deposits
      Another judgement by ITAT Chennai which is not in consonance with the Madras High Court (Jurisdictional High Court, provided facts are similar)
      Held that employees contribution towards PF and ESI deducted by assessee from salaries of employees which is deposited by assessee beyond the due date prescribed under relevant statutes governing PF and ESI, but deposited prior to due date of filing of return of income u/s.139(1) of the 1961 Act shall be allowed as deduction and we direct deletion of the additions made to the income of the assessee. The assessee succeeds in its appeal filed with tribunal. – Decided in favour of assessee.

  3. SUNIL K JAIN says:

    A Knowledgefull decussion. I have received intimation u/s 143(1) saying to add back employee’s contribution which was paid before due date u/s 139(1) and file revised return within 30 days otherwise same will be added into profit. pls guide what i should do?
    futher i think ICAI should incorporate this issue in `Pre-budget memorandum’ to be given in Finance minister.

    1. CA Lalit Munoyat says:

      If you are located within the jurisdiction of the High Courts of M.P., Guharat, Kerala and madras , then the issue is covered against the assessee. In other states it is covered in favour of the assessee. Some latest judgments are as under:
      (1) ITAT MUMBAI In Favour: – 25-06-19
      M/S. FIRST FLIGHT COURIERS LTD. VERSUS DCIT-12 (2) (1) , MUMBAI
      Delayed payment of employee Contribution of PF and ESI – expenditure was suo-moto disallowed by the assessee while filing the return of income but pleaded for the allowance of the same during assessment proceedings – HELD THAT:- Keeping in view the fact that assessee’s correct income was to be computed and keeping in view the decision of Jute Corporation of India Ltd. V/s CIT [1990 (9) TMI 6 – SUPREME COURT] , we admit the assessee’s claim and restore the issue back to the file of Ld. AO to examine the same. The Ld. AO is directed to allow the same after verifying that the aforesaid contributions / payments were deposited before due date of filing of return of income and secondly, the deduction of the same was not claimed by the assessee in any other Assessment Year. The assessee is directed to substantiate the same. This ground stands allowed for statistical purposes.

      (2) ITAT RAJKOT (Against the assessee) 05-03-19
      ADDL. COMMISSIONER OF INCOME TAX, RANGE-2, JAMNAGAR VERSUS HIRAVATI MARINE PRODUCTS PVT. LTD.
      Disallowance u/s 43B – delay in payments made to the employer as well as employee’s contribution to PF – HELD THAT:- The issue regarding the employee’s contribution towards the provident fund after the grace period as specified under the relevant Act is not eligible for deduction u/s 43B, in view of the judgment of Hon’ble Gujarat High Court in the case of the GSRTC [2014 (1) TMI 502 – GUJARAT HIGH COURT] .

      (3) ITAT KOLKATA In favour 27-02-19
      A.C.I.T, CC-3 (2) , KOLKATA VERSUS M/S. SNOWTEX INVESTMENT LTD.
      Delayed payment of employees’ contribution to provident fund (PF) – HELD THAT:- We find that though deposits were made slightly late but all the PF and ESI amounts were deposited before the due date of the filing of the return of income under section 139 of the Act. The Hon’ble Calcutta High Court in the case of M/s Vijay Shree Ltd [2011 (9) TMI 30 – CALCUTTA HIGH COURT] has held that any sum deposited in the government account for PF and ESI before the due date of the filing of the return is to be allowed as expenditure u/s 36(1)(va) read with section 2(24)(x) – we are of the view that there is no infirmity in the order passed by the ld CIT(A). The conclusions arrived at by the CIT(A) are, therefore, correct and admit no interference by us. We, approve and confirm the order of the CIT(A).

  4. Colonel K Malaiappan says:

    The Single Judge order in W.P.No.5264 of 2018 dated 23-10-2018 of the Hon’ble High Court of Madras has been over run by Two judge ( JJ ) bench of the Hon’ble High Court of Madras in Writ Appeal No.2854 of 2018 & CMP.No.23727 of 2018 dated 9-1-2019

  5. Sumit Mehta says:

    Sir,
    What if the employer bears the entire contribution i.e. employeee’s share and employer’s own share? In that case, the PF/ESI is not deducted from salary and in fact debited to the Profit & Loss A/c as PF Exp or ESI Exp.In such case, employer does not collect anything from employee so section 2(24)(x) seems not applicable and no question of of deduction u/s. 36(1)(va) arises.

    Is it maintainable and whether it is possible that auditor can simply write a note and do not give table ? whats your opinion?

  6. SANJAY SOHANE says:

    Last date for making salary to employee is 7th. and ESIC & PF has be deposited within 15th. The First thing Government should ensure Is payment to employees are released within 7th ? Is the Government department including PSU’s,Electricity Board, Railways , PHE, PWD etc are releasing the due payment to their supplier or contractors within their agreed due date? If the Government find the Answer is Postive then they should stand with their rules for disallowing the PF & ESIC beyond due date ? Else they should appreciate the Institutions companies firms who are depositing PF & ESIC within same months and allow such expenses as eligible. However, towards strictness Income Tax department should Levy Interest as per ESIC & PF rules for delayed period and should be descritionaries. Supreme Court and many High Court allow such expenses.

  7. adv kc gupta says:

    wonderful article which distinguished the various high courts in favour and gainst.why they have not applied binding judgement of sc.

  8. PARAS CHHAJED says:

    On 23.02.2017 Honourable Supreme Court dismissed SLP No. 3951/2017 in the case of Pr. CIT vs. M/S. RAJASTHAN STATE BEVERAGES CORPORATION LTD. agaist judgement of Honourable Rajasthan High Court allowing deduciton in respect of Employees’ contribution to EPF / ESIC if paid before due date of filing of return.
    ITEM NO.22 COURT NO.8 SECTION IIIA
    S U P R E M E C O U R T O F I N D I A
    RECORD OF PROCEEDINGS
    Petition(s) for Special Leave to Appeal (C)….CC No. 3922/2017
    (Arising out of impugned final judgment and order dated 26/05/2016
    in DBITA No. 66/2015 passed by the High Court of Rajasthan at
    Jaipur)
    PRINCIPAL COMMISSIONER OF INCOME TAX-II, JAIPUR Petitioner(s)
    VERSUS
    M/S. RAJASTHAN STATE BEVERAGES CORPORATION LTD. Respondent(s)
    (with appln. (s) for c/delay in filing SLP and office report)
    WITH
    S.L.P.(C)…CC No. 3951/2017
    (With appln.(s) for c/delay in filing SLP and Office Report)
    Date : 23/02/2017 These petitions were called on for hearing today.
    CORAM : HON’BLE MR. JUSTICE A.K. SIKRI
    HON’BLE MR. JUSTICE ASHOK BHUSHAN
    For Petitioner(s) Mr. A.N.S. Nadkarni, Ld. ASG
    Ms. Shruti Srivastav, Adv.
    Mr. Santosh R., Adv.
    Mr. Rupesh Kumar, Adv.
    Mr. Ajit Yadav, Adv.
    Mr. Raj Singh Rana, Adv.
    Ms. Sneha T., Adv.
    Mrs. Anil Katiyar, AOR

    For Respondent(s)

    UPON hearing the counsel the Court made the following
    O R D E R
    Delay condoned.
    The Special Leave Petitions are dismissed.
    Pending application(s), if any, shall stand disposed of.
    (LAYA RAWAT) (MALA KUMARI SHARMA)
    SR.P.A. CO URT MASTER

    1. CA Lalit Munoyat says:

      Yes correct. This case in included in this article. In all there are 5 SC judgments already included in the article marked in green. It is very confusing that despite the favorable order of the Supreme Court, dated 4-7-17 , Gujarat High Order dated 15-10-2018 and MADRAS HIGH COURT : October 23, 2018 have given orders “against the assessee”

      1. PARAS CHHAJED says:

        t appears that the dismissal of SLP 3951/2017 by Honourable Supreme Court on 23/02/2017 against final judgment and order dated 26/05/2016 in DBITA No. 66/2015 passed by the Honourable High Court of Rajasthan at
        Jaipur) in the case of PRINCIPAL COMMISSIONER OF INCOME TAX-II, JAIPUR VERSUS
        M/S. RAJASTHAN STATE BEVERAGES CORPORATION LTD. was not brought to the knowledge of the Honourable Madras High Court otherwise the decision would have been in favour of the assessee. The assessees must take it up appropriately.

  9. Dev kumar kothari says:

    S.2.24 x is constitutionally invalid. Any amount received in trust , on behalf of others, or as per law ,for onward remittance or repayment is a capital receipt and cannot be considered income in any commercial and legal context. Employer who does not remitt amount to concerned fund is liable to pay with interest, damages and penalty can be levied, employer can be prosecuted, for breach of trust, . Etc. Therefore deeming provision to deem any such receipt as income is ultravirse the Constitution of India. Surprisingly no one seems to have challenged virse of the provision, perhaps on hope that deduction shall be allowed, as and when paid.

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