Employees and employer contribution to PF covered u/s section 43B

ORDER

G. Manjunatha, Accountant Member – This appeal filed by the revenue and cross objection filed by the assessee are directed against the order of CIT(A), Visakhapatnam dated 11.9.2014 and it pertains to the assessment year 2011-12.

2. The brief facts of the case are that the assessee-company which is engaged in the business of procuring, distributing and making sales of electricity, filed its return of income for the assessment year 2011-12 on 30.9.2010 declaring Nil total income after set off of brought forward losses of Rs. 13,87,64,087/-. Thereafter, the assessee has filed a revised return of income on 17.3.2012 declaring a gross total income of Rs. 13,87,64,087/- and total income of Rs. Nil after claiming deduction u/s 80IA(4)(iv)(c) of the Income Tax Act, 1961 (hereinafter called as ‘the Act’). The case has been selected for scrutiny and accordingly, a notice u/s 143(2) of the Act was issued which was duly served upon the assessee on 16.8.2012. In response to notice, the authorized representative of the assessee appeared from time to time and furnished relevant information as called for and also produced the books of account and other information. During the course of assessment proceedings, the A.O. noticed that as per the enclosure to tax audit report and the documents produced for verification, there is a delay in remittances of employees’ contribution to Provident fund. Therefore, issued a notice and asked to explain why said amount could not be treated as income u/s 2(24)(x) r.w.s. 36(1)(va) of the Act. In response to notice, the assessee submitted that the delay in remittances of employees contribution to Provident fund is unavoidable and reasons beyond control, such as the company is facing staff problem and also the PF authorities have introduced on line payments of PF remittances. The assessee further submitted that because of new system of online payment of PF remittances, its staff is not acquainted with the knowledge of submission of returns because of which it has hired outsiders to remit the payment, therefore, there is a delay in remittances of PF contribution. The assessee further submitted that though, there is a delay in remittances of employees contribution to PF within the due date specified under the respective Act, the same has been remitted on or before due date of furnishing return of income u/s 139(1) of the Act, therefore, the same should be allowed. In support of its submissions, relied upon certain judicial decisions. The A.O., after considering the explanations of the assessee held that as per the provisions of section 2(24)(x) r.w.s. 36(1)(va) of the Act, employees contributions to PF received by the assessee is income in its hands and is deductible only if the same is paid within the due date as prescribed under the Provident fund Act. The A.O. further observed that the assessee sought to distinguish between the employer and employee contribution to Provident fund, but, the fact is that both contributions are dealt under different provisions and accordingly, the employer contribution is dealt under the provisions of section 43B of the Act and employees contribution is dealt under the provisions of section 36(1)(va) of the Act. Therefore, there is no merit in the contention of the assessee that both contributions are allowed, once deposited on or before the due date of furnishing return of income u/s 139(1) of the Act. In support of his arguments relied upon certain judicial decisions and made additions of Rs. 85,50,398/- towards belated payment of employees contributions to provident fund.

3. Aggrieved by the assessment order, the assessee preferred an appeal before the CIT(A). Before the CIT(A), the assessee reiterated the submissions made before the A.O. The assessee further submitted that second proviso to section 43B of the Act, provides that no deduction shall be allowed unless such sum has actually been paid on or before due date as defined in explanation 36(1)(va) of the Act, which was omitted by the Finance Act, 2003 w.e.f. 1.4.2004 and accordingly there was no special provision regarding employees provident fund to PF. It was further submitted that as per the amended provisions of section 43B of the Act, any sum payable by the assessee as an employer by way of contribution to PF shall be allowed, in case the same is paid on or before due date of furnishing return of income u/s 139(1) of the Act. The assessee further submitted that the delay in remittances of employees’ contribution was due to genuine and unavoidable reason and not an intentional act on the part of the assessee. The assessee is having staff problem and also the PF authorities have introduced e-payment system which was new to the assessee and assessee employees are not acquainted with the knowledge of procedure of e-payment of PF. Therefore, there is a delay in remittances which cannot be considered as purposeful delay in remittances of PF contribution. The CIT(A) after considering the submissions of the assessee and also following certain judicial decisions, held that the assessee would be entitled for deduction of employees contribution to PF made before the due date of filing return of income u/s 139(1) of the Act. With these observations, Ld. CIT(A) directed the A.O. to delete the additions made towards employees’ contribution to PF. Aggrieved by the CIT(A) order, the revenue is in appeal before us.

4. The Ld. D.R. submitted that the CIT(A) erred in holding that the assessee would be entitled for deduction of employees’ contribution to PF made on or before the due date of filing return of income u/s 139(1) of the Act. The D.R. further argued that the Ld. CIT(A) erred in relying upon the provisions of section 43B of the Act for adjudicating the issue of employees’ contribution to Partnership Firm, as the said section is applicable only in respect of employer contribution to PF which operates on a different platform as compared to the provisions of section 36(1)(va) of the Act which is applicable to employees’ contribution. The D.R. further argued that the CIT(A) considered the case laws which is in favour of the assessee, but at the same time ignored the case laws relied upon by the A.O. which are in support of the revenue. There are divergent views taken by various High Courts in respect of employees’ contribution, however, the facts remains that as per the provisions of section 36(1)(va) of the Act employees’ contribution is deductible only when it is remitted on or before the due date specified under the PF Act. Therefore, the assessment order passed by the A.O. should be upheld. On the other hand, the Ld. A.R. for the assessee strongly supported the order of the CIT(A).

5. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. The A.O. made additions towards belated payment of employees’ contributions to PF. According to the A.O., employees’ contribution to provident fund is deductible under the provisions of section 36(1)(va) of the Act, if the same is paid on or before the due date specified under the provident fund Act. The A.O. further was of the opinion that in view of the clear provisions of section 2(24)(x) r.w.s. 36(1)(va) of the Act, any recovery from employees towards provident fund contribution is deemed to be income of the assessee, if the employer not paid the same to the provident fund account of the employee within due date specified under the provisions of PF Act. It is the contention of the assessee that second proviso to section 43B of the Act provides that no deduction shall be allowed unless such sum is actually been paid on or before due date as specified in explanation to 36(1)(va) of the Act which was omitted by the Finance Act, 2003 w.e.f. 1.4.2004 and accordingly, there was no special provision regarding employees’ contribution to PF. It is further contended that as per the amended provisions of section 43B of the Act, any sum payable by the assessee as an employer by way of contribution to PF shall be allowed, if the same is paid on or before the due date of filing of return of income u/s 139(1) of the Act.

6. The only issue to be resolved is whether the assessee would be entitled to claim deduction for the employees’ contribution made to PF after the due date prescribed under the PF Act, but before the due date prescribed for filing of income-tax return in the light of the provisions contained in section 36(1)(va) of the Act and section 43B(b) of the Act. It is the contention of the assessee that there is no distinction between employer and employee contribution after omission of second proviso of section 43B of the Act by Finance Act, 2003 w.e.f. 1.4.2004. We find force in the arguments of the assessee for the reason that there is no difference between employees and employer contribution under the PF Act. Section 6 of Provident Fund Act provides for contribution and the manner in which such contribution shall be made. Paragraph 30 of the PF Scheme provides for payment of contributions. As per the said scheme, the employer at the first instance shall make the total contribution including employees’ share. Paragraph 32 provides for recovery of member share of contribution and as per the scheme, the employer can recover the employees’ share from the wages paid to the employee. Therefore, as per the PF Act and scheme of contributions, the contributions means and include both employees’ and employer’s share. Similarly, section 2(c) of the Provident Fund Act defines the contribution to mean a contribution payable in respect of a member under the scheme or the contribution payable in respect of an employee to whom the scheme applies. There is a prescribed mode of payment of contributions under the PF Act. Under the said Act, the employer shall contribute both employees and employer share along with administrative charges before the due date specified under the PF Act. The Act prescribed only one due date for depositing the contribution i.e. 15th of subsequent month with the grace period of 5 days which indicates that there is no difference between employee and employer contribution. If the legislature intends to differentiate employees and employer contribution, then there would have been two due dates like in the case of Income Tax Act. Therefore, from the above, it is clear that the Provident Fund Act does not differentiate employees and employer contribution and contribution means both employees and employer contribution under the PF scheme.

7. Section 43B of the Act provides for certain deductions to be allowed only on actual payment basis. Sub clause (b) of section 43B of the Act covers any sum payable by the assessee as an employer by way of contribution to any Provident fund or superannuation fund or gratuity fund or any other fund for the welfare of the employees. The proviso to section provides that any sum paid by the assessee on or before the due date of furnishing return of income u/s 139(1) of the Act, then no disallowance can be made under the provisions of section 43B of the Act. A careful consideration of section 43B of the Act, it is clear that an extension is granted to the assessee to make the payment of PF contributions or any other fund till the due date of furnishing return of income u/s 139(1) of the Act. Therefore, in our opinion, there is no difference between employees and employer contribution to PF and if such contribution is made on or before the due date of furnishing return of income u/s 139(1) of the Act, then deduction is to be allowed under the provisions of section 43B of the Act.

8. The Hon’ble Karnataka High Court, in the case of Essae Teraoka (P.) Ltd. v. Dy. CIT [2014] 366 ITR 408  took the view that the word contribution occurring in section 43B of the Act would include employees’ contribution to PF in the light of the definition of the word contribution as per the provisions of section 2(c) of the PF Act. As per the said section, contribution would mean both employer’s contribution and employees’ contribution. Accordingly, it was held that the provisions of section 43B of the Act allowing deduction for payment made before the due date of filing of Income-tax return cannot be ignored. Similarly, the ITAT, Hyderabad Tribunal in the case of Tetra Soft (India) (P.) Ltd. v. Asstt. CIT [2015] 70 SOT 66  held that when assessee remitted employees’ contribution to PF within due date of filing return of income u/s 139(1) of the Act, amount of employees’ contribution to PF cannot be disallowed. Similar view was upheld by the Chennai bench of the ITAT, in the case of Asstt. CIT v. Farida Shoes (P.) Ltd. [2016] 46 CCH 29. The coordinate bench held that if assessee had not deposited employees’ contribution towards provident fund up to the due date as prescribed under relevant statute, but before due date of filing of return no disallowance could be made in view of the provisions of section 43B of the Act. In the case of CIT v. Udaipur Dugdh Utpadak Sahakari Sangh Ltd. [2014] 366 ITR 163 (Raj.), the Hon’ble High Court of Rajasthan, after referring to the apex court decision in the case of CIT v. Alom Extrusions Ltd. [2009] 319 ITR 306  & CIT v. Vinay Cement Ltd. [2007] 213 CTR 268 (SC) held that the deductions should be allowed for the payment of employees’ contribution made before the due date of filing of return. Similarly, in the case of CIT v. State Bank of Bikaner, the Hon’ble Rajasthan High Court held that contribution paid after the due date under the respective Act, but before filing the return of income u/s 139(1) of the Act cannot be disallowed u/s 43B of the Act and or u/s 36(1)(va) of the Act.

9. The ld. D.R. relied upon the decision of Hon’ble High Court of Kerala, in the case of CIT v. Merchem Ltd. [2015] 378 ITR 443  and submitted that employees’ contribution to provident fund is allowed as deduction, if the same is deposited on or before the due date specified under the provisions of provident fund Act. The D.R. also relied upon the decision of Gujarat High Court in CIT v. Gujarat State Road Transport Corpn. [2014] 366 ITR 170  wherein the Hon’ble Gujarat High Court held that since assessee had not deposited said contribution to respective fund account on the date as prescribed in explanation to section 36(1)(va) of the Act, disallowance made by the A.O. was just and proper. Though, the D.R. relied upon certain judicial precedents which are in favour of the revenue, in view of the decision of Hon’ble Supreme Court, in the case of CIT v. Vegetables Products Ltd. [1973] 88 ITR 192, wherein the Hon’ble Supreme Court held that if two reasonable constructions of a taxing provision are possible that construction which favours the assessee must be adopted, therefore, by respectfully following the decision of Supreme Court, when divergent views are expressed by different judicial forums, we prefer to follow the views expressed by the Courts which are in favour of the assessee.

10. Considering the facts and circumstances of this case and also following the judicial precedents as discussed above, we are of the view that there is no distinction between employees’ and employer contribution to PF, and if the total contribution is deposited on or before the due date of furnishing return of income u/s 139(1) of the Act, then no disallowance can be made towards employees’ contribution to provident fund. The CIT(A) after considering the relevant details rightly deleted the additions made by the A.O. We do not see any reasons to interfere with the order of the CIT(A). Hence, we inclined to uphold the CIT(A) order and dismiss the appeal filed by the revenue.

11. The cross objection filed by the assessee is in support of the order of CIT(A). Therefore, for the reasons recorded in the preceding paragraphs, we dismiss the cross objection filed by the assessee as infructuous.

12. In the result, the appeal filed by the revenue and the cross objection filed by the assessee are dismissed.