Employees' PF/ESI contribution allowed as deduction when paid before Sec.139(1) return due date under Sec.36(1)(va) and Sec.43B

The ITAT Chennai allowed the assessee's claim for deduction of employees' contribution to PF/ESI under Sec. 36(1)(va) r.w.s. 2(24)(x), read with Sec. 43B, where such contributions were deposited before the due date for filing the return of income under Sec. 139(1). Relying on its own coordinate bench precedent, the Tribunal held that payment of employees' contributions to welfare funds before the Sec. 139(1) due date satisfies the statutory requirement, notwithstanding delays vis-à-vis the respective fund due dates. The disallowance made by the revenue authorities was therefore directed to be deleted, and the issue on merits was decided in favour of the assessee.

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Issues Involved:
1. Assessee’s eligibility to claim deduction of Employees’ Contribution to PF/ESI under Sec. 43B read with Sec. 36(1)(va) and Sec. 2(24)(x).

Detailed Analysis:

1. Common Issue and Background:
All the appeals pertain to the common issue of whether the assessee is eligible to claim deductions for Employees’ Contribution to PF/ESI under the provisions of Sec. 43B read with Sec. 36(1)(va) and Sec. 2(24)(x). The facts and issues are similar across all the appeals, and the adjudication in one appeal applies to all others. The lead order in these matters was passed in M/s Benco Thermal Technologies Private Ltd. V/s Asstt. Director of Income Tax (ITA No.281/Chny/2021 on 23.02.2022).

2. Revenue’s Stand:
The revenue authorities denied the deduction on the grounds that the payments were made beyond the due date specified in the relevant acts governing those welfare funds. They invoked the provisions of Sec. 36(1)(va) read with Sec. 2(24)(x). The revenue's representative, Shri ARV Sreenivasan, supported the denial and relied on the CIT(A)’s order.

3. Assessee’s Stand:
The assessee argued that the deduction should be allowed under Sec. 43B since the payments were made before the due date of furnishing the return of income under Sec. 139(1). The assessee’s counsels confirmed that the Employees’ Contribution was paid before the due date of filing the return and requested adjudication based on merits without delving into legal grounds.

4. Tribunal’s Findings and Adjudication:
The Tribunal found that under Sec. 43B, any sum payable by the employer to welfare funds is allowed as a deduction only on actual payment. The proviso to Sec. 43B allows the deduction if the payment is made before the due date of furnishing the return of income under Sec. 139(1). The Tribunal noted that the term ‘Income’ under Sec. 2(24)(x) includes sums received from employees as contributions to welfare funds, and these contributions are treated as the assessee’s income. However, Sec. 36(1)(va) allows deductions if the contributions are credited to the employees’ account in the relevant fund before the due date specified in the statute governing those funds.

5. Judicial Precedents:
The Tribunal referenced several judicial precedents where higher courts, including the Hon'ble Karnataka High Court in Essae Teraoka (P.) Ltd., Hon'ble Rajasthan High Court in Pr. CIT V/s Rajasthan State Beverages Corpn. Ltd., and others, held that if the employees’ contribution is paid before the due date of filing the return under Sec. 139(1), the deduction is allowable. The Tribunal noted that the Hon’ble Supreme Court dismissed the revenue’s SLP against the Rajasthan High Court’s decision, indicating the issue had attained finality.

6. Jurisdictional High Court’s View:
The Tribunal highlighted that the Hon'ble Madras High Court, in CIT v. Industrial Security & Intelligence India (P.) Ltd., favored the assessee, holding that contributions paid before the due date of filing the return under Sec. 139(1) are deductible. This decision takes precedence over the single judge bench decision in Unifac Management Services (India) P. Ltd. V/s DCIT, which held otherwise.

7. Amendment by Finance Act, 2021:
The Tribunal discussed the amendment brought by Finance Act, 2021, which clarified that Sec. 43B does not apply to employees’ contributions. This amendment, effective from 01/04/2021, applies prospectively to Assessment Year 2021-22 and subsequent years. The Tribunal, referencing the decision in Adyar Anand Bhawan Sweets India Pvt. Ltd. V/s ACIT, held that the amendment is prospective and does not affect prior periods.

8. Conclusion:
The Tribunal concluded that the provisions of Sec. 43B override Sec. 36(1)(va), allowing deductions for employees’ contributions paid before the due date of filing the return under Sec. 139(1), even if paid beyond the due date specified in the relevant statute. The appeals were allowed, directing the revenue to grant the claimed deductions and recompute the assessee’s income. The Tribunal also provided liberty to the revenue to apply for rectification if valid reasons arise.

Order Pronounced:
The appeals were allowed on 11th April 2022, with the revenue directed to allow the deductions as claimed by the assessee.

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