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Whether EPF payment beyond due date specified under the PF Act is an allowable expenditure u/s 36(va)?
One need to refer section 2(24)(x) and Section 36(va) to understand the proviso in of law on the issue.
PF deduction of Employee contribution by the employer is treated as Income u/s 2(24)(x) in the hands of the employer. Combined reading of both the sections will clearly convey that Employees contribution to PF shall not be held as allowable deduction u/s 36(va) if it is done beyond the due date given under the PF Act.
However, logical interpretation is done in most of the judicial pronouncements. The logical conclusion was extracted on the basis of Apex court observation in Alom Extrusion Ltd which was related to Sec 43B & not 36(1)(va). It held in favor of assessee as far as employers contribution is concerned if it is deposited after due date given under the relevant PF Act but before due date of filling IT Return.
On the basis of principle laid down by Apex court in above pronouncements, various courts have stretched it to allow Employees contribution to PF as deduction even if the same is deposited after due date mentioned under the relevant PF Act but before due date of filling IT Return.
Various pronouncements in favor of allowing deductions are by Allahabad HC, Rajasthan HC, Delhi HC, Calcutta HC, etc. The same may be referred as under:
- Sagun Foundry Ptd Vs. CIT ( All.HC).
- CIT vs. Jaipur Vidyut Vitran Nigam Ltd ( Raj. HC).
- CIT VS. Vijay Shree Ltd ( Cal.HC).
- CIT Vs. Aimil Ltd ( Del.HC).
- CIT Vs. Kichha Sugar Co. Ltd ( UK HC).
- Ghadge Patil case by Mumbai HC
- CIT VS. NIPSO Polyfabriks Ltd ( HP Hc).
- Essae Teraoka (P) Ltd vs.DCIT ( Kar.HC).
However, there are pronouncements in favor of the revenue which is relied more by the CPC to make disallowance u/s 36. The same are,:
- CIT Vs. Gujarat State Transport Corporation.
- Eagle Trans Shipping & Logistics (India) (P) Ltd Vs. ACIT (ITAT, Delhi
- CIT Vs. Merchem Ltd ( Kerala HC).
In all the judgment in favor of the revenue it is held that Employees contribution to PF when not deposited within the due date given under the PF Act shall not be allowed u/s 36(va) as it is in clear contravention of the literal interpretation of the I.T. Act. All the judgment in favor of the assessee have concluded that it’s the payment and purpose which is relevant and once the payment is done before the due date of filing income tax return, the purpose is served and the amount should be allowed as deduction.
Though most of the High courts are in favor of the assessee still the issue is controversial. More so, because
- a) CPC, Bengaluru is processing the return for the entire country and
b) is disallowing the payment if done after due date under the relevant Act.
Every assessee can decide on its own line of actions subject to contrary views & litigation. If assessee voluntary disallows it, he will be subject to additional liability. If assessee claims it as deduction, it will be subject to litigation and compliances.
The issue will remain controversial till either the
- Supreme court pronouncement specifically u/s 36(1)(VA) is there or
- CBDT clarifies it or
- Section 36(1)(va) is suitably amdneded by the Legislature.