2018 (9) TMI 1873 - AT - Income Tax

Tribunal affirms disallowance of employees' fund contributions under tax law, stresses timely deposits

The Tribunal upheld the disallowance of employees' contribution to Provident fund under section 36(1)(va) of the Income Tax Act, emphasizing the ... Addition to belated employees' contribution to Provident fund - addition u/s 36(1)(va) r.w.s. 2(24) (x) - HELD THAT:- We consider that explanation to section 36(1)(va) makes it very much clear that for the purpose of clause (va) of sub-section(1) of section 36 “due date” means the date by which the assessee is required as an employer to credit the employee’s contribution to employees account in the relevant fund under any act, Rule or notification issued thereunder or under any standing order, award or contract of service or otherwise. During the relevant assessment year, if the employer has not deposited the entire amount towards employee’s contribution on or before the relevant (Due Date) under the PF Act/ESI Act, to the extent there is a short fall in deposit of the employee’s contribution/ESI contribution the assessee shall not be entitled to the deduction. Assessee as an employee has to strictly adhere to the due date of payment as prescribed in the relevant Act i.e. Provident Fund Act. We have also perused the para 38 of Chapter VI of the Employees Provident Fund Act 1952 provide that the employer's and the employee's contribution shall be remitted within 15 days of the close of every month refer to close of the month to which the wages pertain but not to the month in which the wages are paid and contribution is deducted. Taking into consideration, the decision of the Hon’ble Gujarat High Court in the case of CIT vs. GSRTC [2014 (1) TMI 502 - GUJARAT HIGH COURT] wherein it is held that deduction towards employee’s contribution is to be made as per the due date prescribed in the relevant act we do not find any merit in the submission of the assessee. Accordingly the appeal of the assessee is dismissed. Issues:1. Disallowance related to employees' contribution to Provident fund.2. Interpretation of due date for employees' contribution to PF/ESIC.3. Applicability of deduction under section 36(1)(va) of the Income Tax Act, 1961.4. Judicial interpretation of due date for crediting employees' contribution to relevant fund.5. Compliance with provisions of the Employees Provident Fund Act, 1952.Analysis:1. The appeal pertains to the disallowance of employees' contribution to Provident fund amounting to Rs. 39,91,179 for A.Y. 2012-13. The assessing officer disallowed the amount as it was not deposited in the employees' account within the due date. The assessee contended that the payment was made before the financial year's completion and should be allowed. However, the assessing officer invoked section 36(1)(va) of the Act and added the amount to the total income.2. The due date for employees' contribution to PF/ESIC was a crucial point of contention. The assessee argued that the due date should be based on the actual payment date of salary/wages, not the month-end. The assessing officer and CIT(A) disagreed, citing the specific provisions of section 36(1)(va) and the Gujarat High Court's decision in a similar case. The due date prescribed by the relevant act was deemed crucial for deduction eligibility.3. Section 36(1)(va) was pivotal in determining the deductibility of employees' contribution. The CIT(A) upheld the disallowance based on the Gujarat High Court's decision, emphasizing that non-depositing the sum by the due date specified in the act would negate the deduction, even if deposited before the return filing date under section 139(1) of the Act.4. The Tribunal analyzed the legal interpretations regarding the due date for crediting employees' contribution to the relevant fund. It referenced the Gujarat High Court's ruling that the due date signifies when the employer must credit the employee's contribution to the fund. Compliance with this due date was deemed essential for claiming deductions under section 36(1)(va) of the Act.5. The Tribunal highlighted the significance of adhering to the due date as prescribed in the Provident Fund Act. It emphasized the importance of timely remittance of employer and employee contributions, as mandated within 15 days of the month-end to which the wages pertain. The decision aligned with the legal framework and judicial interpretations, leading to the dismissal of the assessee's appeal based on non-compliance with the due date requirements.In conclusion, the Tribunal's decision reaffirmed the criticality of adhering to due dates for crediting employees' contributions to the relevant fund, as prescribed by the legal framework and judicial precedents, ultimately leading to the dismissal of the appeal.