How far the employee contribution paid by employer after due date but before filing of return of income would be deductible?
Section 43B of the Income tax act, 1961 states that certain statutory expenses are allowed to be claimed in the year of payment only. It disallows the sum which is not paid in the financial year or at least before the due date of filing tax return while computing income under the head “Profits and Gains of business or profession”.
This section in short deals with certain types of payments and directs the assessee to claim such payments as an expense in the same assessment year when it was actually paid and not in the year in which the liability to pay such sum was incurred.
The payments stated below can be claimed Under Section 43B
- Any tax ,duty etc
- Any contribution made by the employer towards benefit of their employees and comes under the category of a provident fund, gratuity or superannuation fund. Bonus or Commission to employee.
- Interest on loan Payable to approved financial institution and scheduled bank
- Salary in lieu of leave.
- Any amount made by the taxpayer to the Indian Railways is allowed to be claimed as an expense and when the payment is made.
The above mentioned expenses can be claimed as deduction while computing the business or professional income only when the payment is actually made by the assessee up to the due date fixed for furnishing the return of income in A.Y
In case the payment is made by the assessee after the due date of furnishing return of income, in such case the deduction will be allowed to the assessee in the year in which payment is made.
There were arguments regarding allowance of deduction of employee’s contribution towards PF and ESIC.
Disputes were regarding the due dates to be considered for allowing deduction.
- Due date of filing of Income Tax return or
- Due date of the respective acts
In the case of Commissioner of Income Tax Vs. Hemla Embroidery Mills (P.) Ltd.
The Punjab and Haryana High Court decided a similar issue in favour of the assessee.
FACTS:
- 43B: Deductions on actual payment-Employers’/Employees’ contribution towards PF and ESI-Paid prior to filing of return.
- Assessee deposited employer’s and employees’ contributions to the PF and ESI prior to the filing of the return u/s. 139(1) though beyond due dates.
- No disallowance can be made.[S.2(24)(x),36(1)(va),139(1)].
HELD:
- It held that the Second proviso to section 43B of the act omitted by the Finance Act, 2003 with effect from 01.04.2004 was clarificatory in nature and was to operate retrospectively.
- Thus, assessee deposited employee’s contribution to ESI and Provident Fund before due date of filing return under section 139(1), the same will be allowable as deduction.
- Disallowance of deduction could not be made under section 43B in such scenario.
By
Maitri Badani
(Article Assistant)
