Employer must deposit provident fund on time for tax deductions; missed deadline results in disallowed claim.

The Tribunal, in line with the Supreme Court's ruling, held that the employer must deposit employees' provident fund contributions within statutory deadlines to qualify for deductions. Failure to comply results in the amount being deemed as the employer's income. The amendment by the Finance Act, 2021, was deemed prospective, but the Court emphasized the importance of timely contributions regardless of the amendment. The appeal was dismissed due to the employer's failure to meet the statutory deadline, leading to the disallowance of the claimed deductions under relevant sections of the Income-tax Act.

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Issues Involved:
1. Disallowance of the claim regarding belated remittance of employees' provident fund contribution.
2. Interpretation of the amendment by the Finance Act, 2021, and its prospective or retrospective effect.
3. Timeliness of the appeal filing.

Detailed Analysis:

1. Disallowance of the Claim Regarding Belated Remittance of Employees' Provident Fund Contribution:

The primary issue in this appeal is the disallowance of the employees' contribution to the Provident Fund and ESIC. The appellant argued that according to various decisions by the Pune Tribunal, if the employees' contribution to the provident fund is paid before the due date of filing the return of income, it is deductible under section 43B of the Income-tax Act, 1961. The appellant contended that the amendment made by the Finance Act, 2021, which inserted Explanation 2 to section 43B, is applicable prospectively from A.Y. 2021-22. In this case, the payment was made before the due date of filing the return of income under section 139(1) of the Act.

The Tribunal noted that various Benches of the ITAT have held that if the assessee has not deposited employees' contribution to EPF, ESI, etc., within the due date prescribed under the respective statutes but paid before the due date of filing the return of income under section 139(1), the A.O. was directed to delete additions made under section 36(1)(va) of the Act. The Pune Tribunal has passed orders in favor of the assessees, relying on the Hon'ble Jurisdictional High Court in the case of CIT Vs. Ghatge Patil Transports Ltd. and other High Courts' decisions.

However, the Hon'ble Supreme Court, in the case of Checkmate Services P. Ltd. Vs. CIT-1, observed that there was a division of opinion among various High Courts regarding the interpretation of section 36(1)(va) and section 43B. The Supreme Court analyzed the legal essence of welfare legislations such as ESI, EPF, etc., and held that the employees' contributions are not part of the employers' income but are held in trust for the employees. Therefore, these contributions must be deposited on or before the due date specified in the respective statutes to qualify for deduction under section 36(1)(va). The Supreme Court upheld the Gujarat High Court's decision, stating that the non-obstante clause under section 43B does not absolve the employer from the liability to deposit the employees' contribution on or before the due date.

2. Interpretation of the Amendment by the Finance Act, 2021, and Its Prospective or Retrospective Effect:

The appellant argued that the explanation to section 36 by the Finance Act, 2021, has a prospective effect and not a retrospective effect. The Tribunal, following the Supreme Court's judgment, held that the amendment by the Finance Act, 2021, inserting Explanation 2 to section 43B, is applicable prospectively from A.Y. 2021-22. However, the Supreme Court's interpretation of the existing provisions clarified that the employees' contributions must be deposited within the due date specified in the respective statutes to qualify for deduction, irrespective of the amendment.

3. Timeliness of the Appeal Filing:

The appeal was time-barred by 23 days. However, the delay was condoned based on the Hon'ble Supreme Court's judgment in Cognizance for Extension of Limitation, In re, and the appeal was admitted for disposal on merits.

Conclusion:

In conclusion, the Tribunal, following the Supreme Court's judgment, held that the assessee-employer was duty-bound to deposit the employees' contribution to the provident fund within the due date mentioned in the respective statutes. Since this was not done, the assessee is not entitled to deduction under section 36(1)(va) read with section 43B of the Act, and the said amount is to be construed as deemed income of the assessee and added to his total income. The appeal filed by the assessee was dismissed.

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