JCIT

 Vs 

Bharat Pumps And Compressors Ltd

ITA Nos. 147 & 148/ALLD/2016

The issue before Allahabad ITAT was whether deduction is to be allowed for belated payment of employee contribution to PF/ESI, deposited beyond due date stipulated under relevant statutes governing PF/ESI but deposited before due date for filing ITR u/s 139(1) of the 1961 Act?

Allahabad ITAT held it in favour of the assessee by holding that deduction is to be allowed for belated payment of employee contribution to PF/ESI, deposited beyond due date stipulated under relevant statutes governing PF/ESI but deposited before due date for filing ITR u/s 139(1) of the 1961 Act. With this, the Matter was remanded.

Let us have a short overview of the case:

1.  Assessee, a PSU engaged in manufacturing business, had made contribution towards shortfall in interest earning of BPCL Employees PF Trust vis-à-vis interest computed based on rate notified by Central Government for PF, for 2 years viz., previous years relevant to AYs 2004-05 and 2005-06.

2. The PF trust was recognized by I-T department. As per Rule 25(v) of BPCL Employees Provident Fund Rules, employees were entitled for interest on PF at rates notified by Central Government and any shortfall in earnings of PF trust shall be made good by assessee by contributing the shortfall additionally apart from its normal employer contribution towards PF.

3. Assessee had claimed business expenses during year under consideration, firstly on account of shortfall of interest earned by PF trust vis-à-vis rates of interest notified by Central Government for PF for AY 2004-05 and secondly an amount towards shortfall on account of interest earned by PF trust vis-à-vis rates of interest notified by Central Government for PF, for year under consideration i.e., AY 2005-06. Assessee had claimed that shortfall of interest earned by PF trust for AY 2004-05 was made in this year as accounts of PF trust wee audited on 25.09.2005 and hence it had come to know about this liability after audit of PF trust.

4. For impugned AY 2005-06, assessee had claimed that on estimated basis, liability for shortfall in interest earned on PF trust was accounted for in this year. AO disallowed the same on grounds that these were not regular business expenses but CIT(A) allowed the same as business expenses u/s 37(1).

5. Besides, AO had made disallowance on account of employees contribution received by assessee from its employees towards PF contribution, which was admittedly deposited late beyond time prescribed under PF Act as stipulated u/s 36(1)(va) of the 1961 Act but was deposited by assessee within due date prescribed for filing of return of income u/s 139(1) of the 1961 Act and against which relief was granted by CIT(A) to assessee.

Thus, Revenue filed present appeals.

On Appeal, ITAT held that the deduction is to be allowed for belated payment of employee contribution to PF/ESI, deposited beyond due date stipulated under relevant statutes governing PF/ESI but deposited before due date for filing ITR u/s 139(1) of the 1961 Act.

It observed as under:

1. Applicability of provision of sec. 36(1)(iv) r.w. Schedule IV, sec. 43B, Rules 75 and 88 and other relevant applicable provisions/rules/notifications/judicial precedences etc. dealing with employer contribution to PF and quantum allowable had not been looked into by both authorities below.

2. These provisions/rules prima facie had bearing on resolution of dispute between both rival parties. Only after detailed arguments and bringing relevant evidences on record that may require inquiry into facts that dispute between both parties could be resolved regarding allowability as well quantum allowable.

3. Thus, the issue was restored to AO’s file for fresh adjudication on merit in accordance with law.

4. AO shall provide proper and adequate opportunity of being heard to assessee in accordance with principles of natural justice in accordance with law.

5. AO shall admit all the relevant details/evidences/submissions furnished by assessee in its defense in set aside proceedings before AO, which will be decided by AO on merits in accordance with law. AO was directed to pass reasoned and speaking order.

6. Besides, HC had held in an earlier case that deduction was to be allowed for belated payment of employee contribution to PF/ESI that was deposited beyond due date stipulated under relevant statutes governing PF/ESI but was deposited before due date for filing of return of income u/s 139(1) of the 1961 Act.

7. Tribunal being inferior judicial body to HC was bound by decision of HC as a cardinal principles of judicial discipline and to instill certainty among taxpayers.

8. Thus, assessee’s claim for deduction of amount towards employees contribution to PF was allowed.