Deduction not allowable on Depositing Employees contribution towards ESI & PF after due date: ITAT [Read Order]

The Delhi Bench of Income Tax Appellate Tribunal (ITAT) ruled that the deduction is not allowable on depositing employees' contribution towards Employee State Insurance (ESI) & Provident Fund (PF) after the due date.

An addition under section 36(1)(va) has been made by the DCIT, CPC, Bangalore on account of delay in depositing the ESI and EPF. The copy of tax audit report which is part of the income tax return filed by the assessee, Vedvan Consultants Pvt. Ltd. and it can be found that the amount has been paid beyond the due date as prescribed in the ESI & PF Act under the Income Tax Act. However, there is no dispute that it is deposited before the due date of filing of return for the assessment year 2018-19.

The issue at hand regarding allowability of deduction on account of deposit of employee’s contribution to provident fund and ESI. The CIT (A) held that the same have not been paid before the due date are not eligible for claim of deduction.

The coram of Judicial Member Kul Bharat and Accountant Member Dr. B. R. R. Kumar held that the assessee company is not entitled for deduction under section 36(1)(va) of the Act claimed on account of depositing the employees contribution towards ESI and PF as per provisions contained under section 2(24)(x) read with section 36(1)(va) after due date.

Clause (24) of section 2 of the Income Tax Act, 1961 (The Act) provides an inclusive definition of the income. Sub-clause (x) to the said clause provides that income to include any sum received by the assessee from his employees as contribution to any provident fund or superannuation fund or any fund set up under the provisions of ESI Act or any other fund for the welfare of such employees. Section 36 of the Act pertains to the other deductions. Sub-section (1) of the said section provides for various deductions allowed while computing the income under the head 'Profits and gains of business or profession.’ Clause (va) of the said sub-section provides for deduction of any sum received by the assessee from any of his employees to which the provisions of sub-clause (x) of clause (24) of section 2 apply, if such sum is credited by the assessee to the employee's account in the relevant fund or funds on or before the due date. Explanation to the said clause provides that, for the purposes of this clause, "due date to mean the date by which the assessee is required as an employer to credit an employee's contribution to the employee's account in the relevant fund under any Act, rule, order or notification issued there-under or under any standing order, award, contract of service or otherwise.

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