2025 (9) TMI 16 - AT - Income Tax

Assessee allowed deduction under s.36(1)(va) for provident fund contributions treated timely despite cheque clearing next working day

M/s. Unimax Laboratories, B.O. Versus DCIT/ACIT, Circle-4, Amritsar.

M/s. Unimax Laboratories, B.O. Versus DCIT/ACIT, Circle-4, Amritsar. - TMI ISSUES PRESENTED AND CONSIDERED 1. Whether employers' deduction under section 36(1)(va) of the Act is allowable where employees' contribution to provident fund for a month was deposited on 13.09.2017 (relating to August 2017) though omitted/misreported in the tax audit Form 3CD; and whether such omission in the audit report precludes allowance of the deduction. 2. Whether employees' contribution to provident fund for the month of July 2017, payable by 15.08.2017, is deductible where the payment was credited/cleared on 16.08.2017 because 15.08.2017 was a national holiday - i.e., whether deposit on the next working day constitutes timely deposit for purposes of section 36(1)(va). ISSUE-WISE DETAILED ANALYSIS Issue 1 - Allowability of deduction under section 36(1)(va) despite incorrect reporting in Form 3CD Legal framework: Section 36(1)(va) permits deduction for employees' contribution to provident fund where the contribution is deposited by the employer as mandated. Tax audit reporting (Form 3CD) is a statutory compliance requirement that records particulars of payments; however, substantive allowance of deduction depends on fulfillment of statutory conditions (i.e., actual deposit) and documentary proof. Precedent treatment: No contrary precedent was applied to negate deduction solely on the basis of incorrect audit-schedule figures when documentary evidence establishes actual payment. Interpretation and reasoning: The Tribunal examined bank statements and challans showing the actual credit to the provident fund authorities. The omission/misreporting in the tax audit schedule (incorrect figure entered and separate challan not reflected) was found to be inadvertent. The Tribunal treated the substantive fact of deposit as decisive for allowance under section 36(1)(va), rather than the clerical error in the audit report. Ratio vs. Obiter: Ratio - A deduction under section 36(1)(va) cannot be denied merely because of an inadvertent or incorrect entry in the tax audit Form 3CD when convincing documentary evidence (bank statements and challans) establishes that the employees' contribution was deposited within the statutory time. Obiter - None. Conclusion: The deposit of Rs. 1,03,453 on 13.09.2017 (relating to August 2017) is within time and deductible under section 36(1)(va) despite incorrect reporting in Form 3CD; the addition based solely on the audit-report error is not sustainable. Issue 2 - Timeliness of deposit made on next working day when due date falls on a holiday Legal framework: The statutory due date for depositing employees' provident fund contribution is the 15th of the following month. The issue is whether a payment credited on the next working day because the 15th was a public holiday qualifies as timely for section 36(1)(va) purposes. Precedent Treatment: The Tribunal relied on the legal position adopted by a High Court that payments credited on the next working day where the due date was a holiday can be considered timely; the decision of that High Court was followed in this case. Interpretation and reasoning: The Tribunal accepted documentary proof (bank clearing and challan) that the cheque was cleared and amount credited on 16.08.2017, the next working day after the 15th which was a national holiday. Following the High Court's observation in the referred case, the Tribunal treated the deposit on the next working day as within the permissible time-frame for enabling deduction under section 36(1)(va). Ratio vs. Obiter: Ratio - Where the statutory due date for deposit of employees' provident fund contribution falls on a public holiday, a deposit credited on the next working day will be treated as timely for the purpose of claiming deduction under section 36(1)(va), provided documentary evidence shows payment was effected through banking channels and credited to the authorities accordingly. Obiter - The Tribunal's reliance on the High Court's observation is applied as binding guidance in the facts of this appeal; no broader rule beyond the factual matrix was articulated. Conclusion: The payment of Rs. 1,00,291 credited on 16.08.2017 is allowable as having been deposited in time (next working day after a national holiday) and is deductible under section 36(1)(va). Cross-references and combined conclusion Both issues center on the central statutory condition for deduction under section 36(1)(va): actual deposit of employees' contribution within the prescribed time-frame. Documentary evidence (bank statements and challans) proving credit to the provident fund authorities controls over inadvertent misstatements in the audit report, and deposits made on the next working day where the due date is a holiday are to be treated as timely. On these bases, the additions disallowing the two amounts were reversed.