Employees' PF and ESI contribution disallowance fails where amounts are remitted before the income-tax return due date.

Employees' contribution to provident fund and ESI was examined against the statutory distinction from employer's contribution, with the Finance Bill, 2021 memorandum noting that the amendment to section 36(1)(va) and section 43B operates prospectively from 1 April 2021. For the years in issue, the decisive fact was that the contributions collected by the employer were deposited in the Government treasury before the due date for filing the return. On that basis, the disallowance did not survive and the addition was deleted in favour of the assessees.

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Issues: Whether employees' contribution to provident fund and ESI, remitted to the Government treasury before the due date for filing the return of income, was liable to disallowance for the relevant assessment years.

Analysis: The relevant statutory scheme distinguishes employees' contribution from employer's contribution. The memorandum to the Finance Bill, 2021 was noted to clarify that the amendment to section 36(1)(va) and section 43B applies prospectively from 1 April 2021 and, for the years in question, the decisive fact remained whether the employees' contribution collected by the employer was deposited within the due date for furnishing the return under the Act. Since the assessees had remitted the amounts within that time, the basis for disallowance did not survive for the assessment years under appeal.

Conclusion: The disallowance was unsustainable and the addition made towards employees' contribution to PF and ESI was directed to be deleted, in favour of the assessees.

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