PF / EPF, CPF, GPF etc. paid after due date but before ROI, cannot be disallowed u/s 43B or 36(1)(va)

Brief of the case:

PF / EPF, CPF, GPF etc. paid after due date but before ROI, cannot be disallowed u/s 43B or 36(1)(va)

In the case of ACIT Vs. M/s Supersonic Turner Pvt. Ltd., Jaipur Bench of ITAT have held that where ESI/PF received from the employees was deposited late but before the due date of filing return of income u/s 139 (1) the amount cannot be disallowed u/s 43B or 36 (1) (va).

Besides this ITAT also decided issues related to concealed sale and concealed sale of scrap on basis of difference between 26AS and P&L Account or ER-1 return.

Facts of the case:

• Assessee has derived income from manufacturing and job work of bearing rings and filed e-returndeclaring total income of Rs. 2,15,45,510/-.
• During assessment proceedings assessee was asked in respect of difference in job work receipts amounting to Rs. 27,27,293/-.
• Assessee came into agreement with various vendors for purchase of scrap. Assessee paid excise duty on the scrap which has been generated at the vendor’s premises as per agreement.
• During the course of assessment it was observed that the assessee had made late payment of ESI in all its units.

Contention of the revenue:

• In comparison to statement appearing 26AS, the assessee has declared the less amount of receipt.
• Assessee has sold goods but in respect of some debit notes related to sale ultimate effect would be nil regarding to which no proper explanation was filed before AO.
• AO formed opinion that assessee concealed job works.
• Debit note for Rs. 31,399/- were not pertained against the invoice issued during the year under consideration, therefore, the same are not deductable from the sales of the year.
• Sales of machinery and plants is not deductable on account of sales of goods to compare the sales as declared in ER-1. The sales not pertaining to year under consideration, also not deductable in the sales made during the year to compare the sales as declared in ER-1.
• As per Section 2(24)(x) read with Section 36(va), the payments of ESI and PF made late by the employer are considered as his income for the relevant year.

Contention of the assessee:

• Assessee was following mercantile system of accounting and job receipts were accounted for in the books of account on accrual basis. The assessee, therefore, declared the job receipts in the year of billing however the deductor/principal company accounted for part of job receipts in the subsequent year when the goods were removed from the premises of the appellant company.
• The scrap generated at vendor’s premises was sold by them as it was their property in terms of the agreement which has been entered into with the appellant.
• In respect of PF / EPF, CPF, GPF etc.  It is a settled law that if the dues were paid before the due date of filing of the return of income, no disallowance could be made.

Held by CIT (A):

• CIT (A) restricted the addition on account of difference in job work of Rs. 24,752/- instead of Rs. 27,27,293/- made by AO on the basis of a reconciliation statement.
• The difference was worked out by the AO by comparing the Form No. 26-AS with the job work receipts declared in the books of account. However, many a times, the deductor either did not deduct the tax or accounted for the same in the subsequent year when the goods were lifted from the premises of the appellant company.
• Assessee had satisfactorily explained that it had paid excise duty on the notional value of scrap shown in the ER-1 return.
• AO could have examined the vendors who had not returned the scrap after the job work which was not done by AO.
• The rates of job work were finalized taking into consideration that this scrap generated for the job work was to be retained by the vendors.
• Assessee had sold multi splendle machinery for 6.5 and 13 lacs, however, it was wrongly entered in sales interstate C-Form interest account @ 2%, which has been rectified by the assessee himself by passing reversal entry.
• CIT (A) confirmed the addition of Rs. 1,37,927/- U/s 36(1)(va) relying on the decision of Hon’ble Pune Tribunal in the case of Indian Card Clothing Company Ltd. (ITA No. 214/PN/98) where it was held that the provisions of Section 43B(b) are applicable only in respect of employer’s contribution to PF or ESI and not to the employee’s contribution.

Held by tribunal:

• Difference as per Form No. 26AS and the amount reflected in P&L account is on account of bills pertaining to previous year, which have been booked in the current year by the principal company. Tribunal give its acceptance to the order of CIT (A) on issue of concealment of sale raised by revenue.
• The assessee company had paid excise duty on non-returnable scrap retained by the vendors by taking its notional value or assessable value by the Excise authorities. ER-1 return not only include the goods sold but also goods removed out of factor. Therefore, it is but natural to have difference between sale figures reported by the assessee and figures disclosed in ER-1 return.
• As per agreement made between the appellant and the vendors, the scrap is to be remained with the vendor and it could not be returned back to the appellant as per the terms and conditions of job work charges.
• Regarding addition on account of concealed sales being the difference in figures of sale as per P&L account and that declared in ER-1 filed with the Excise Department ITAT held that CIT (A) has accepted the assessee’s explanation without any verification from the third party, therefore, in the interest of justice, this issue required to be decided afresh by the Assessing Officer.
• The Hon’ble Jurisdictional High Court in the case of CIT Vs. State Bank of Bikaner & Jaipur (2014) 43 taxmann.com 411 (Raj) has held that it is viewed that where the PF and/or EPF, CPF, GPF etc., if paid after the due date under respective Act but before filing of the return of income under Section 139(1), cannot be disallowed under Section 43B or under Section 36(1)(va) of the IT Act.” Respectfully following the findings of jurisdictional high court the issue decided in favour of assessee.