Deduction on Employees’ PF Contribution can be Claim Even if Payment was made After Due Date as per S. 36(1)(va) of Income Tax Act: ITAT [Read Order]

The Delhi bench of the Income Tax Appellate Tribunal (ITAT) has ruled that employers can claim a deduction on employees’ PF contributions even if the payment was made after the due date. The ITAT held that the term “month” in section 36(1)(va) of the Income Tax Act, 1961 should be considered as the month in which the salary or wages are actually disbursed, rather than the month for which the salary or wages are due.

The assessee in this case is a private limited company. The assessee claimed deduction of the employee’s contribution to PF and ESIC under section 36(1)(va) of the Income Tax Act. The Assessing Officer disallowed the deduction on the ground that the employee’s contribution was paid after the due date specified under the relevant PF and ESI Acts.

The assessee appealed against the order of the Assessing Officer to the Commissioner of Income Tax (Appeals) (CIT(A)). The CIT(A) upheld the order of the Assessing Officer.

The assessee contended that the due date for payment of the employee’s contribution should be determined within 15 days of the month in which payment is given to the employee.

The assessee relied on the Calcutta Tribunal’s decision in the case of Kanoi Paper & Industries Ltd. vs. ACIT, which held that the employer would be free to make payment of the contribution within 15 days of the end of the month during which the salary is actually disbursed and the contributions to the PF/ESI are thus generated.

The Revenue contended that the employee contribution is due on the 15th of the month following the month for which it is payable. The Revenue relied on the Supreme Court’s judgment in the matter of Checkmate Services Pvt. Ltd. vs. CIT, which stated that workers’ contributions paid after the due period provided under the PF and ESI Acts are not allowed deductions.

The Two Member Bench comprising N.K. Billaiya (Judicial Member) and C.N. Prasad. (Accountant Member) has returned the issue to the Assessing Officer’s file, following Mumbai Bench directions in The Master Polishers Vs. ACIT (supra). The Assessing Officer must verify the “due date” in the PF Act. The Revenue’s claim for deduction of ESOP expenses under section 37(1) of the Act has been allowed, allowing the appeal partly for statistical purposes.

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