Employer provident fund deduction ceiling must be applied employee-wise; aggregate computation was set aside for fresh verification.

Employer contribution to a recognised provident fund must be tested against the statutory ceiling under section 36(1)(iv) and Rule 87 on an employee-wise basis, because the limit applies with reference to the same employee rather than aggregate gross payments. The computation adopted by the lower authorities was inconsistent with that scheme as it did not examine the claim employee-wise. The addition was set aside and the matter was remitted for fresh verification, with direction to recalculate the claim employee-wise and pass a speaking order after granting the assessee an opportunity of hearing.

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Issues: Whether the addition made for alleged excess employer contribution to provident fund under section 36(1)(iv) read with Rule 87 was sustainable, and whether the computation had to be examined employee-wise.

Analysis: Section 36(1)(iv) permits deduction for employer contribution to a recognised provident fund or approved superannuation fund, subject to prescribed limits. Rule 87 caps the ordinary annual contribution at 27% of salary and operates with reference to the same employee. The lower authorities had applied the ceiling on the basis of gross payments without examining the claim employee-wise. The computation therefore did not conform to the statutory scheme and required fresh verification after giving the assessee an opportunity of hearing.

Conclusion: The addition was set aside and the matter was remitted to the Assessing Officer to recalculate the claim employee-wise and pass a speaking order after hearing the assessee.

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