Deduction u/s 36(1)(va) not allowable When Assessee failed to Deposit Employee's Contribution to PF within due date: ITAT

The Pune bench of the Income Tax Appellate Tribunal (ITAT) has held that deduction under section 36(1)(va) of the Income Tax Act,1961 is not allowable when the assessee failed to deposit employee's contribution to PF within due date.

CC Engineers Pvt. Ltd., the assessee challenged the disallowance of employees’ contribution to Provident Fund as well as ESI made by the CIT(A).  It was contended by the assessee that if the employees’ contribution to the provident fund is paid before the due date of filing of return of income, then it is deductible as per provisions of section 43B of the Income tax Act, 1961 and the amendment made by the Finance Act, 2021 inserting Explanation 2 to section 43B is applicable prospectively i.e. from A.Y. 2021-22. 

The A.O. held that the appellant-assessee has belatedly deposited the employees’ contribution towards the EPF and ESI considering the due date under the relevant Acts and Regulations.

Further ruled by section 30(1)(va) read with section 2(24)(x) of the Act that such amounts received by the appellant-assessee constitute “income”. Those amounts could not have been allowed as deduction u/s 36(1)(va) of the Act when the payment was made beyond the relevant due date under the respective Statutes.

A Coram Shri Inturi Rama Rao, Accountant Member and Shri Partha Sarathi Chaudhury, Judicial Member observed that the payment of employees’ contribution to the provident fund was made before the due date of filing of return of income u/s 139(1) of the Act but beyond the due date as provided in the respective Statutes. 

While dismissing the appeal, the Tribunal held that” the assessee-employer was duty-bound to deposit the employees’ contribution to the provident fund within the due date as mentioned in the respective Statutes.  Since this was not done the assessee is not entitled to deduction u/s 36(1)(va) read with section 43B of the Act and the said amount has to be construed as deemed income of the assessee and added to his total income.” 

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