2020 (10) TMI 1119 - AT - Income Tax

Tribunal allows deduction of employees' PF/ESI contributions deposited before tax return due date.

The Tribunal allowed the appeal by the assessee, permitting the deduction of employees' contributions to PF/ESI deposited before the due date for filing ... Employees contribution received from its employees towards PF/ESI - deposited with PF/ESI authorities beyond the time stipulated under the relevant PF/ESI Act but were deposited within the time stipulated for filing of return of income under the provisions of Section 139(1) - HELD THAT:- As relying on M/S. UNIFAC MANAGEMENT SERVICES (INDIA) PRIVATE LIMITED [2019 (1) TMI 1787 - MADRAS HIGH COURT] and M/S. REPCO HOME FINANCE PVT. LTD. [2020 (6) TMI 470 - ITAT CHENNAI] we decide the issue in favour of the assessee by holding that the employee contribution towards PF/ESI received by assessee from its employees which was deposited beyond the due date as prescribed under the relevant statute governing PF/ESI but were deposited within the due date prescribed for filing of return of income u/s 139(1) of the 1961 Act shall be allowed as deduction while computing income of the assesse under Chapter IV-D of the 1961 Act under the head ‘Profits and Gains from Business or Profession’. - Decided in favour of assessee. Issues Involved:1. Disallowance of employees' contribution to PF & ESI under Section 36(1)(va).2. Addition of unexplained credit under Section 68.3. Treatment of exchange fluctuation in foreign loans.Detailed Analysis:1. Disallowance of Employees' Contribution to PF & ESI under Section 36(1)(va):The primary issue in this appeal concerns the disallowance of employees' contributions to PF & ESI amounting to Rs. 83,08,244/- under Section 36(1)(va) read with Section 2(24)(x) of the Income-tax Act, 1961. The contributions were deposited beyond the time stipulated under the relevant PF and ESI Acts but within the time stipulated for filing the return of income under Section 139(1) of the Act.The CIT(A) upheld the disallowance, relying on the decision of the Hon'ble Madras High Court in M/s. Unifac Management Services (India) Private Ltd., which concurred with the Gujarat High Court ruling that belated employees' contributions to PF/ESI are not deductible.However, the Tribunal noted that the Hon'ble Madras High Court in CIT v. Industrial Security & Intelligence India Pvt. Ltd. had decided this issue in favor of the taxpayer, allowing the deduction if the contributions were deposited before the due date for filing the return of income under Section 139(1), despite being late under the relevant PF/ESI statutes. The Tribunal also referenced several decisions of the Coordinate Benches of the Chennai Tribunal that supported this view.The Tribunal observed that most High Courts in India have taken a view favorable to the taxpayer on this issue, except for the Gujarat and Kerala High Courts. The Tribunal emphasized that judicial discipline requires adherence to the jurisdictional High Court's ruling, which in this case is the Madras High Court's decision in favor of the taxpayer.Therefore, the Tribunal allowed the deduction of Rs. 83,08,244/- towards employees' contributions to PF/ESI, which were deposited before the due date for filing the return of income under Section 139(1) of the Act, albeit beyond the time stipulated under the relevant PF/ESI statutes.2. Addition of Unexplained Credit under Section 68:The assessee had raised grounds related to the addition of Rs. 18,52,300/- as unexplained credit under Section 68. However, during the hearing, the assessee's counsel submitted that these grounds were not pressed and requested their dismissal as withdrawn. The Tribunal, after hearing both parties, dismissed these grounds as withdrawn.3. Treatment of Exchange Fluctuation in Foreign Loans:The assessee also raised grounds concerning the treatment of exchange fluctuation in foreign loans, arguing that the difference should be considered in the capital field and not as an allowable deduction. Similar to the unexplained credit issue, these grounds were also not pressed by the assessee during the hearing and were dismissed as withdrawn by the Tribunal.Conclusion:The Tribunal partly allowed the appeal by the assessee, specifically allowing the deduction of employees' contributions to PF/ESI deposited before the due date for filing the return of income under Section 139(1) of the Act, despite being late under the relevant PF/ESI statutes. The other grounds related to unexplained credit and exchange fluctuation were dismissed as withdrawn.