Late-paid employees' PF/ESI contributions before return-filing due date: deduction allowed; s.43B treated overriding for AY 2018-19.

Employees' contribution to PF/ESI paid after the due dates under the relevant welfare statutes but before the return-filing due date u/s 139(1) was held deductible, since for AY 2018-19 s.43B overrides s.36(1)(va) r.w.s. 2(24)(x), and the Finance Act, 2021 insertion of Explanation 2 to s.36(1)(va) (clarifying that s.43B shall not apply) is prospective from AY 2021-22; consequently, the disallowance was deleted and this ground was allowed. Disallowance u/s 40(a)(ia) was remanded to the CIT(A) to verify Form 26A and delete the disallowance if compliant; this ground was allowed for statistical purposes.

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1. ISSUES PRESENTED AND CONSIDERED

(i) Whether employees' contribution to welfare funds (PF/ESI), deposited after the due dates under the respective welfare statutes but before the due date of filing the return under section 139(1), is allowable as deduction under section 36(1)(va) read with section 2(24)(x) for the relevant assessment year, and whether the Finance Act, 2021 amendments alter the position for that year.

(ii) Whether disallowance under section 40(a)(ia) for non-compliance with TDS provisions can be deleted by applying the second proviso to section 40(a)(ia) upon production of Form 26A showing that the payees have paid due taxes, and what verification is required.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Deductibility of belated employees' PF/ESI contributions paid before return-filing due date; applicability of Finance Act, 2021 amendments

Legal framework (as discussed): The Court considered the interaction of section 2(24)(x) (treating employees' contributions received as "income"), section 36(1)(va) (allowing deduction if credited to the fund by the "due date" under the relevant welfare law), and section 43B (allowing deduction on actual payment, including payment up to the due date of filing the return under section 139(1)). The Court also considered the amendments introduced by the Finance Act, 2021 to section 36(1)(va) and section 43B, and the stated effective date of those amendments.

Interpretation and reasoning: The Court followed its earlier view that, for the relevant year, section 43B overrides section 36(1)(va) for the purpose of allowing deduction where employees' contributions, though deposited beyond the welfare-statute due dates, were deposited before the due date for furnishing the return under section 139(1). On the effect of Finance Act, 2021, the Court accepted that the amendments were intended to apply from the specified effective date and, for the year under consideration, operate prospectively; hence, they could not be applied to deny deduction for payments made before the section 139(1) due date in that year.

Conclusion: The disallowance of employees' PF/ESI contributions was deleted. The revenue authorities were directed to allow the deduction for the stated amount since the facts were treated as covered by the adopted legal position for the assessment year in question.

Issue (ii): Disallowance under section 40(a)(ia) and benefit of second proviso upon furnishing Form 26A

Legal framework (as discussed): The Court addressed section 40(a)(ia) disallowance for failure to comply with TDS provisions and the assessee's claim for relief under the second proviso to section 40(a)(ia), supported by Form 26A under the applicable rules.

Interpretation and reasoning: The Court noted that Form 26A had been placed on record at this stage. Since the earlier confirmation of disallowance was based on non-furnishing of Form 26A, the Court directed factual verification by the appellate authority. The Court confined its direction to verification of whether Form 26A and related particulars satisfy the prescribed requirements, and if so, the disallowance should not survive.

Conclusion: The matter relating to section 40(a)(ia) was remitted for verification of Form 26A and connected details, with a direction to delete the disallowance if the form and supporting material are found in order. The ground was allowed for statistical purposes, subject to the assessee furnishing requisite documents.

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