2012 (11) TMI 751 - AT - Income Tax

ITAT Allows Appeal on Delayed Employee Contributions

The ITAT allowed the appeal, overturning the disallowance of employees' contribution to P.F. and E.S.I.C. under section 43B due to minor delays in ... Application of section 43B to employees' contribution to Provident Fund and ESIC - interaction between section 36(1)(va) and section 43B in respect of employees' contribution - deductibility of employees' contribution paid after statutory due date but before filing of return - retrospective operation of amendment to section 43B and curative proviso - precedential effect of Alom Extrusions Ltd. [2009] 319 ITR 306 (SC)Application of section 43B to employees' contribution to Provident Fund and ESIC - interaction between section 36(1)(va) and section 43B in respect of employees' contribution - deductibility of employees' contribution paid after statutory due date but before filing of return - retrospective operation of amendment to section 43B and curative proviso - Deductibility of employees' contribution to PF and ESIC paid after the statutory due date but before filing the return and whether such contributions are liable to be disallowed under section 43B or governed by section 36(1)(va). - HELD THAT: - The Tribunal held that the controversy is resolved by the decision of the Hon'ble Supreme Court in Alom Extrusions Ltd. [2009] 319 ITR 306 (SC), which construed the omission and subsequent insertion of the second proviso to section 43B as operating retrospectively with effect from April 1, 1988. The Tribunal accepted that the amendment effected by the Finance Act, 2003 is curative in nature and must be read to remedy an obvious omission so as to give effect to the scheme of the provision. Applying Alom Extrusions, payments of employees' contributions which, though made after the statutory due date, were paid within a short delay and before the filing of the return are not to be disallowed in the hands of the assessee. The Tribunal also noted that the coordinate bench decision relied upon by Revenue did not consider the Supreme Court ruling and was therefore per incuriam. Having regard to the Supreme Court's authoritative pronouncement and subsequent consistent decisions of other benches, the Tribunal reversed the orders below and allowed the claim.The disallowance of the employees' contribution to PF and ESIC was reversed and the claim allowed, applying the ratio of Alom Extrusions Ltd. (supra).Final Conclusion: The appeal is allowed; the Tribunal reversed the disallowance of employees' contribution to PF and ESIC, holding the payments (though made after the due date but before filing the return) are allowable in view of the Supreme Court's decision in Alom Extrusions Ltd. Issues:1. Disallowance of employees' contribution to P.F. and E.S.I.C. under section 43B for minor delay in depositing the contribution.2. Applicability of section 43B and the second proviso in the case of employees' contribution.Analysis:1. The appeal concerned the disallowance of Rs.145572 towards employees' contribution to P.F. and Rs.2111 towards E.S.I.C. under section 43B due to minor delays in depositing the contributions. The Assessing Officer noted the late payments based on audit reports submitted by the assessee. The appellant argued that the contributions were paid before the due date of filing the return of income, citing a Supreme Court decision. However, the Assessing Officer disallowed the sum and initiated penalty proceedings for furnishing inaccurate particulars of income.2. The matter was taken to the first appellate authority, where the appellant cited the case of CIT vs. Alom Extrusions Ltd. The CIT(Appeals) upheld the disallowance, stating that section 43B(b) applies to employers' contributions, while employees' contributions are governed by Sec.36(1)(va). The appellant's reliance on case laws was deemed unhelpful, and the delay in payment was considered for upholding the disallowance.3. During the proceedings, the appellant presented several decisions to support their case, while the Revenue relied on a judgment from Kolkata. The ITAT considered the dates of payment and referred to the Supreme Court's decision in Alom Extrusions Ltd. The retrospective application of the second proviso to section 43B was highlighted, emphasizing the curative nature of the amendment. The ITAT noted that the issue was resolved by the Supreme Court and reversed the findings of the lower authorities, directing to allow the claim.4. The ITAT observed that various Co-ordinate Benches were following the decision in Alom Extrusions Ltd., ensuring consistency in allowing such claims. Consequently, the ITAT allowed the appeal of the Assessee, overturning the disallowance of employees' contribution to P.F. and E.S.I.C. under section 43B due to minor delays in depositing the contributions.