The Delhi High Court in the case of Pepsico India Holding Ltd has held that a late deposit to the employee’s Provident Fund (PF )due to a national holiday is allowable.
The question was whether the Income Tax Appellate Tribunal (Tribunal) misdirected itself in law in concluding that even if employees’ contribution concerning the provident fund and towards insurance was deposited beyond the date prescribed under the subject statute, it would be allowable as a deduction to the employer/assessee?
Whether in the facts and circumstances of the case, the respondent/assessee could claim deduction under Section 36(1)(5)(A) of the Income Tax Act, 1961 [Act”], concerning the employees’ contribution to Provident Fund amounting to Rs. 1,56,12,404/- which was deposited on 16.08.2018, as the due date fell on a national holiday i.e., 15.08.2018?
The Tribunal concluded, in line with the aforesaid judgments, that since the amounts in issue had been deposited before the filing of the income tax return under Section 139(1) of the Act, no disallowance could be made, although the deposits were not within the timeframe fixed under the statutes governing provident fund and insurance.
Mr Puneet Rai, senior standing counsel, who appeared on behalf of the appellant/revenue, has relied on the judgment of the Supreme Court in Checkmate Services P Ltd vs. Commissioner of Income Tax, where the Supreme Court has taken a contra view. Therefore, the view taken by the Tribunal would have to be reversed. Mr Deepak Chopra, who appeared on behalf of the respondent/assessee, argued that the disallowance could not be made under Section 143(1) of the Act.
The judgment of the Supreme Court does not say it will apply prospectively, and therefore, the judicial view that prevailed when the Tribunal had pronounced its judgment, having changed, it can only be stated that the position of law was always as declared in Checkmate Services (P.) Ltd, and therefore, the deduction could never have been claimed by the respondent/assessee while filing the return. Accordingly, the first question of law framed is allowed in favour of the appellant revenue.
It was argued that since the deposit of the employee’s contribution towards the provident fund was made on 16.08.2018, following a National Holiday i.e., 15.08.2018, the Assessing Officer (AO) had rightly disallowed the deduction, as the due date was 15.08.2018.
A division bench comprising Justice Rajiv Shakdher and Justice Girish Kathpalia observed that “since the due date fell on a date which was a National Holiday, the deposit could have been made by the respondent/assessee only on the date which followed the National Holiday. Section 10 of the General Clauses Act would help the respondent/assessee to tide over the objections raised on behalf of the appellant/revenue.”
The Court ruled against the appellant/revenue and in favour of the respondent/assessee.
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