The Ahmedabad Bench of Income Tax Appellate Tribunal ( ITAT ) partly allowed the appeal and remanded the case to the Assessing Officer ( AO ) for verification of employer contributions disallowed under Section 43B(b) of Income Tax Act,1961 due to delayed payments
Ambalal Sarabhai Enterprises Ltd.,appellant-assessee,was involved in manufacturing drugs and pharmaceuticals. It also offered marketing and consultancy services in areas like fine chemicals, industrial glass containers, packing materials, and electronic instruments. The company had 15 divisions, including service units that supported other units within the corporation.
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The assessee submitted a return of income for the respective assessment year 2002-03 to 2007-08, and the cases were chosen for scrutiny. The assessments were finalized under section 143(3) of the Act.
The Assessing Officer(AO) disallowed contributions to Employee State Insurance(ESI), Labour Welfare Fund, Superannuation Fund, Provident Fund(PF), Family Pension Fund(FPF), Employees Deposit Linked Insurance Scheme(EDLIS), and other similar funds under Section 43B(b) of the Act.
The amounts disallowed for the assessment years were 1,96,21,831 for 2002-03, 1,08,53,589 for 2003-04, and 1,02,67,284 for 2004-05. The AO noted that the assessee did not pay the employer’s contributions to these funds on time, leading to the disallowance under Section 43B(b) of the Act.
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The Commissioner of Income Tax(Appeals)[CIT(A)] noted that the AO had used the 20th day after the month’s end as the due date for the Section 43B(b) disallowance, instead of the actual salary/wage payment date. The CIT(A) also observed that the assessee had already made a suo moto disallowance for the employer’s PF contribution based on this approach.
However, since there was no evidence that the payments were made before the return filing date, the CIT(A) decided that the disallowance could not be allowed.
The two member bench comprising Suchitra Kamble(Judicial Member) and Makarand V.Mahadeokar(Accountant Member) noted that the assessee counsel mentioned the Co-ordinate Bench had upheld the CIT(A)’s decision in the taxpayer’s case for A.Y. 2001-02 (ITA No. 1771/Ahd/2015).
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Following this, the appellate tribunal decided to send the issue back to the AO for verification to check if the contributions were paid before the return filing due date. If the payments were made within the allowed time under Section 43B(b), the disallowance should be allowed. Therefore, the tribunal partly allowed the ground, subject to verification by the AO.
For the disallowance of Rs. 1,02,67,284 under Section 43B for employees’ PF contributions in AY 2004-05, the tribunal noted that the Jurisdictional High Court’s decision in CIT-II vs. Gujarat State Road Transport Corporation went against the assessee. The assessee counsel accepted this, and the ground was dismissed.
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