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Disallowance u/s. 43b - urgent

CA Shraddha (Mcom, CS Exe.) (Service) (224 Points)

29 February 2012

Dear All,

In my case, during the course of assessment proceedings the A.O. has disallowed the amount deposited by me in respect of employees contribution to provident fund on following grounds:

Section referred by AO 43B and 36(1)(va)
The above referred amount for the month of april 2008 is deposited on 16.05.08 (within the grace period).
The A.O. has contended that the payment is made beyond the due date prescribed under the relevant law and that the grace period of 5 days is solely fir d purpose of determining amount of damages for non compliance with PF Act.

Whether the contention of AO is correct? Whether there are any decisions in this regard? Please Share.

Regards,

Shraddha

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8 Replies

Deepak Gupta (CA Student) (15922 Points)
Replied 29 February 2012

In the case of CIT v. Shri Ganapathy Mills Co. Ltd., 243 ITR 879, the Tribunal had held that contributions towards Provident Fund and Employees’ State Insurance, which were made within the grace time allowed under the relevant statute, were allowable as deductions.
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The Madras High Court has again in the case of CIT v. Salem Co-op. Spinning Mills Ltd., 258 ITR 360 allowed the deduction in the year of actual payment of PF and held that the deduction could not be denied as long as the same was made within the grace period allowed under the respective statute.
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It is significant to note that by an amendment made in the second proviso by the Finance Act, 1989 the words ‘during the previous year on or before due date’ are deleted. Accordingly, it is possible to argue that all payments made during the previous year, whether made by due date or not should be allowed as deduction.
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For more refer:

Payment of PF dues within grace period — Allowability u/s.43B

https://www.bcasonline.org/articles/artin.asp?206

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Rehbar Siamwala (Sr. Executive Taxation) (112 Points)
Replied 29 February 2012

Section 43B provides your answer, please read the last two paras.

Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of -

(b) 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 employees,

The second proviso which provided that the contribution of the employer to provident fund or superannuation fund or gratuity fund etc to be paid on or before the “due date” mentioned in section 36(1)(va) has been omitted by the Finance Act, 2003. Hence, from the assessment year 2004-05, employers’ contribution to the welfare funds of the employees is eligible for deduction even though remitted belatedly.

The specific reference to various clauses of section 43 B was omitted by the Finance Act, 2003 and hence from the assessment year 2004- 05, all payments covered by section 43 B, if made before the “due date” specified in section 139(1), satisfied the eligibility for deduction.

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IMRAN HASHIM BADAT (CHARTERED ACCOUNTANT) (34 Points)
Replied 29 February 2012

No, the contention of the A.O is not correct. You may refer the following:

The employee`s contribution to provident fund beyond the stipulated period under the said Act, cannot be treated as the income of the assessee under section 36(1)(va) read with section 2(24)(x) of the Act as the amounts were paid by the assessee on or before the due date for furnishing the return under section 139(1) of the Act.

The hon'ble Supreme Court in the case of CIT v. Vinay Cement Ltd. [2009] 313 ITR (St.) 1, has held, while upholding the judgment of the Gauhati High Court in CIT v. George Williamson (Assam) Ltd. [2006] 284 ITR 619, that statutory items like PF and ESI if paid before the due date of filing of the return have to be allowed as a deduction irrespective of the fact whether the contributions related to the employer or employee.

Further In your case the amount was deposited within the grace period allowed under the respective Act and the same shall be allowed as deduction.

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ankit (Chartered Accountant) (27 Points)
Replied 29 February 2012

Section 43B Controls Section 36 (1)(va)

Gopal Nathan

In the recent completed assessments the assessing officer’s resorted to large scale disallowance of sums u/s 36 (1)(a) r.w.s. 2 (24 ) (x) for late deposit of Employee contributions to PF even when such sums stood paid before the due date of filing of return. In Commissioner of Income-tax Vs. P. M. Electronics Ltd. (2009) 3131ITR161 the A O disallowed the contributions made by the assessee towards provident fund under section 43B of the Income-tax Act, 1961, for the assessment year 1998-99, on the ground that the payments were made by the assessee after the due date under section 36(1)(va) of the Act and accordingly made additions.

Drawing note of the subsequent amendment to the provisions of section 43B of the Act by virtue of the Finance Act, 2003, with effect from April 1, 2004 and the order in Vinay Cement Ltd.` s case [2007] 213 CTR 268 ; [2009] 313 ITR (St.) 1 dated March 7, 2007 the Delhi High Court held that the assessee is entitled to claim the benefit under section 43B particularly in view of the fact that it had contributed to provident fund before filing the return. The department perhaps have challenged this decision and refuted its application as far as deposit of employee’s share of PF contribution beyond the due date referred to in Explanation under clause (va) of section 36 (1). One would understand the dispute as far as the plea of curative effect of subsequent amendment but wonder how would the dispute holds any water in a period falling after F A 2003 amendment.

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shekhar (Student) (55 Points)
Replied 01 March 2012

People before quoting these big case laws i am suprised that none of you cared to understand the question itself ! Here the question is of disallowance of employees contribution ( Money of employee lying with the employer for payment towards the fund i.e as per 2(24)(x) is treated as income of employer IF NOT PAID BEFORE DUE DATES OF RELEVENT MONTH NOT EVEN YEAR. FURTHER IF THIS WOULD HAVE BEEN EMPLOYERS CONTRIBUTION THEN GRACE PERIOD IS ALLOWED UNDER 43B.

THUS THE IS RIGHT IN HIS ACTION.

FOR FURTHER REFERENCE READ SECTION 2(24)X ALONG WITH 36(1)VA AND 43B

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ashish jain (prop) (38 Points)
Replied 12 December 2012

DEAR ALL

MY CLIENT HAD PAID TAXES I.E VAT AND SERVICE TAX ON 26TH SEPT BY CHEQUE, THE BANK HAVE PUT STAMP ON THE CHALLANS AS CHALLAN AND CHQ RECD ON 26/09 AND ANOTHER RUBBER STAMP ON 03/10 AS DATE OF REALISATION. THE PAYMENTS ARE MADE BEFORE THE SUMISSION OF AUDIT REPORT U/S 44AB AND FILING OF RETURN I.E 30TH SEPT

THE ITO INTENDS TO DISALLOW THE EXPENDITURE ON THE GROUNDS OF SECTION 43 B WHICH SAYS THAT CERTAIN PAYMENT CAN BE ALLOWED AS EXPENSES ON ACTUAL PAYMENT.

MY QUERY IS WETHER THE EXPENDITURE IS ALLLOWABLE AS EXPENSES OR NOT

AS THE ABOVE PAYMENTS WERE MADE BY THE CHQ AND CBDT CIRCULAR 261 DT 8/8/1979 SPECIFY THAT PRESENTATION OF THE CHEQUE OR DRAFT TO THE BANK WILL BE THE DATE OF PAYMENT OF THE AMOUNT PROVIDED THE CHQ IS HONOURED.

ARE THERE ANY CASE LAWS PERTAINING TO THIS MATTER

WETHER MY ARGUMENT IS CORRECT THAT THE CLIENT SHOULD GET THE DEDUCTION ON THE GROUNDS OF CBDT CIRCULAR.

PLS HELPME ASIT IS URGENT.

THANKS

ashish jain (prop) (38 Points)
Replied 12 December 2012

THE ITO INTENDS TO DISALLOW THE EXPENDITURE ON THE GROUNDS OF SECTION 43 B WHICH SAYS THAT CERTAIN PAYMENT CAN BE DEDUCED ON ACTUAL PAYMENT.

MY QUERY IS WETHER THE EXPENDITURE IS ALLLOWABLE AS EXPENSES OR NOT

AS THE PAYMENTS WERE MADE BY THE CHQ AND CBDT CIRCULAR 261 DT 8/8/1979 SPECIFY THAT PRESENTATION OF THE CHEQUE OR DRAFT TO THE BANK WILL BE THE DATE OF PAYMENT OF THE AMOUNT PROVIDED THE CHQ IS HONOURED.

ARE THERE ANY CASE LAWS PERTAINING TO THIS MATTER

WETHER MY ARGUMENT IS CORRECT

PLS HELPME ASIT IS URGENT.

THANKS