Employee’s contribution for PF/ESI before

due date of filing return of income is

It is commonly seen that the assessees who have filed Income Tax Return along with Tax
Audit Report are receiving notices from the Income Tax Department for making adjustment
on the ground that payment of the employee’s contribution to specified funds made beyond
the due date specified in the respective law and therefore would attract the disallowance
under section 36(1)(va) of the Income Tax Act, 1961(hereinafter referred to as the “Act”).
The tax Auditors are required to report the details of contribution towards Provident Fund
(hereinafter referred to as “PF”) and Employees State Insurance (hereinafter referred to as “ESI”).
The tax audit report specifies the due date of its deposit under the prescribed statute and the actual
date of deposits.
It is generally seen that on the verification of the said tax audit report, if the AO finds that the
assessee had deposited sums towards PF and ESI after the due date as prescribed under the
provisions of the respective Acts, he disallows the same under section 36(1)(va) of the Act without
considering the fact that the same was deposited before the due date for filing the return of income
for the relevant year.
In this regard, it is submitted that if the assessee has deposited the said amount after the due date
prescribed under the statutory provisions of the respective enactments but well before the due
date of filing the return of income under section 139(1) of the Act for the relevant year the same
should be allowable.
Legal Analysis
Attention of is invited to section 2(24)(x) of the Act which reads as under,
“Definitions.
2.In this Act, unless the context otherwise requires,—
…
(24) “income” includes
…
(x) any sum received by the assessee from his employees as contributions to any provident
fund or superannuation fund or any fund set up under the provisions of the Employees’ State
Insurance Act, 1948 (34 of 1948), or any other fund for the welfare of such employees;”
(Emphasis Added)
Attention is further invited to section 43B of the Act, relevant extracts of which read as under,
“Certain deductions to be only on actual payment.
43B. Notwithstanding anything contained in any other provision of this Act, a deduction
otherwise allowable under this Act in respect of,
(a)……..,
(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…
…
shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred
by the assessee according to the method of accounting regularly employed by him) only in
computing the income referred to in section 28 of that previous year in which such sum is actually
paid by him :
Provided that nothing contained in this section shall apply in relation to any sum which is
actually paid by the assessee on or before the due date applicable in his case for furnishing
the return of income under sub-section (1) of section 139 in respect of the previous year in
which the liability to pay such sum was incurred as aforesaid and the evidence of such payment
is furnished by the assessee along with such return”
(Emphasis Added)
Further, the relevant provisions of section 36(1)(iv) and 36(1)(va) of the Act read as under,
“Other deductions.
36. (1) The deductions provided for in the following clauses shall be allowed in respect of the matters
dealt with therein, in computing the income referred to in section 28—
…
(iv) any sum paid by the assessee as an employer by way of contribution towards a recognized
provident fund or an approved superannuation fund …
(va) any sum received by the assessee from any of his employees to which the provisions of sub-
clause (x) of clause (24) of section 2 apply, if such sum is credited by the assessee to the
employee’s account in the relevant fund or funds on or before the due date.
Explanation.—For the purposes of this clause, “due date” means the date by which the assessee is
required as an employer to credit an employee’s contribution to the employee’s account in the
relevant fund under any Act, rule, order or notification issued thereunder or under any standing
order, award, contract of service or otherwise;”
(Emphasis Added)
On perusal of the above provisions, it could be seen that employees’ contribution towards PF/ESI is
considered to be income in the hands of the employer under section 2(24)(x) of the Act and
simultaneously, the employer can claim deduction of the said sum under section 36(1)(va) of the Act.
However, on account of overriding provisions of section 43B(b) of the Act, the same is allowable on
payment basis. The first proviso to section 43B of the Act provides that if an assessee pays PF/ESI
on or before the due date applicable in his case for furnishing the return of income under section
139(1) of the Act, then, the same is allowable under section 43B of the Act.
In this regard it is pertinent to note that the erstwhile second proviso to section 43B of the Act was
provided that PF/ESI was to be allowed in the event the same was deposited within the due date as
prescribed in the respective legislature. However, the said proviso was deleted by the Finance Act,
2003 w.e.f. 01-04-2004. The said second proviso to section 43B of the Act, as applicable prior to 01-
04-2004, is reproduced below for the ready reference,
“Provided further that no deduction shall, in respect of any sum referred to in clause (b), be allowed
unless such sum has actually been paid in cash or by issue of a cheque or draft or by any other
mode on or before the due date as defined in the Explanation below clause (va) of sub-section (1) of
section 36, and where such payment has been made otherwise than in cash, the sum has been
realised within fifteen days from the due date.”
(Emphasis Added)
Thus, after the deletion of the above proviso, i.e. w.e.f. 01-04-2004, the restriction as provided in
erstwhile second proviso to section 43B of the Act is no longer valid. In such a situation, post 01-04-
2004 the assessee can claim deduction in respect of any sum referred to in section 43(b) of the Act
under the first proviso to section 43B of the Act on payment basis i.e. if the same is paid on or
before the due date of filing the return of income under section 139(1) of the Act the same is
allowable.
As the said proviso was causing lot of problem to the Industry, the Govt. pursuant to the Report of
the Kelkar Committee, deleted the said proviso with effect from 1-4-2004 as discussed by the
Hon’ble Apex Court in the case of CIT -vs.- Alom Extrusions Ltd. (2009) 319 ITR 306 (SC). The
amendment was carried out to mitigate the difficulties caused to the employer under section 43B of
the Act. It was made clear that though such contributions are not paid within the time prescribed
under the relevant Act, if those contributions are paid before the due date prescribed under section
139(1) of the Act, the employer shall be entitled to the deductions as provided under section 36(1) of
the Act.
Contention that employees’ contribution is not covered under section 43(b) is not tenable
The moot answer to the question of allowability of employees’ contribution revolves around the
interpretation of the words “any sum payable by the assessee as an employer by way of
contribution to any provident fund or…” If it is to be read as only employer’s contribution, then the
contention of the AO is absolutely right and the contribution made after the date prescribed in the
respective Act is not allowable. On the contrary, if the contribution also includes employees’
contribution then all the contributions made prior to the due date of filling return is allowable and the
due date of the respective Act becomes irrelevant.
In order to find out, what actually the term, ‘contribution’ is, it is necessary to look into the provisions
of Section 29 of The Provident Fund Act r.w. para 29 of The Employees’ Provident Funds
Scheme, 1952. Similarly one needs to look into the laws regarding the Superannuation
fund and Gratuity fund also. The said provisions provides that the contributions payable by the
employer under the scheme shall be @ 10% of the basic wages, dearness allowance and the
contribution payable by the employee shall be equal to the contribution payable by the employer in
respect of such employee. However, the employer shall, in the first instance, pay both the
contribution payable by himself i.e. the employer’s contribution as well as the employee’s
contribution and thereafter the employer is entitled to recover by means of deduction from the
employee the contribution which he has paid as employee’s contribution. Therefore, in law, the
payment of contribution by the employer to the fund under the scheme means both employer’s
contribution and employee’s contribution. Whether the employer deducts the employee’s contribution
from the salary or not, in law, the employer is liable to pay the said amount.
Therefore, it can be said that in law, the payment of contribution by the employer to the fund under
the scheme means both employer’s contribution and employee’s contribution. While extending such
benefit, the Parliament has not made any distinction between the employee’s contribution and the
employer’s contribution. It is for the simple reason, under the provident fund scheme, an employer
has to pay both the contribution and then recover from the salary of the employee. Therefore, the
contribution includes both employees’ contribution as well as employer’s contribution and thereby, it
can be said if the assessee had deposited all its contributions towards PF/ESI well before the due
date of filing the return of income for the relevant year, the same is allowable under the first proviso
to section 43B of the Act on payment basis.
Further, it is to be noted that if the employees’ contribution is not deposited by the due date
prescribed under the relevant Acts and is deposited late, the employer not only pays interest on
delayed payment but can incur penalties also, for which specific provisions are made in the
respective Act. The respective statutes permit the employer to make late deposit with some delays,
subject to the aforesaid consequences. In so far as the Income-tax Act is concerned, the assessee
can get the benefit if the actual payment is made before the due date of filing of return of income.
The employer’s contribution means both employer’s contribution as well as employees’ contribution
because the employer is statutorily responsible to deposit both employees and employers
contribution before the respective authorities and therefore the due date referred to in section
36(1)(va) of the Act must be read in conjunction with section 43B of the Act and accordingly,
employees contribution to PF and ESI if deposited before the due date of filing the return of income
under section 139(1) of the Act for the relevant year the same would be allowable under section 43B
of the Act.
Judicial Analysis
There are various decisions wherein the issue before the Hon’ble High Courts were, whether the
addition by the AO on account of employees Contribution to ESI and PF by invoking the provision of
Section 36(1)(va) read with section 2(24)(x) of the Act was correct or not. In the case, where the
assessee had not deposited employees’ contribution to PF and ESI within the due date prescribed in
the provisions of the respective Acts but the same were deposited before the due date
of filing the return of income under section 139(1) of the Act. The Hon’ble High Court has held that
the employees’ Contribution to PF and ESI deposited on or before the due date of filing the return of
income under section 139(1) of the Act is allowable as deduction by invoking the provisions of
section 43B(b) of the Act. While deciding the issue the Hon’ble High Courts have placed reliance on
the decision of the Apex Court in the case of CIT -vs.- Alom Extrusions Ltd. (2009) 319 ITR 306
(SC)
In the case of CIT -vs.- Spectrum Consultants India (P.) Ltd. (2014) 49 taxmann.com 29
(Kar.) wherein the Hon’ble Karnataka High Court in respect of allowance of belated deposit of
Provident Fund held that,
“Therefore, in law, the payment of contribution by the employer to the fund under the scheme means
both employer’s contribution and employee’s contribution. Whether he deducts the employee’s
contribution from the salary or not, in law, he is liable to pay the said amount. Therefore, s. 2(24)(x)
of the IT Act makes it clear that the employees contribution which the employer deducts from his
salary before it is paid into the fund, is treated as the income of the employer, and the employer by
contributing can get the deduction. That payment must be made within the due date i.e. the due date
prescribed under s. 139(1) of the Act. Because it was causing lot of problem as discussed in the
judgment of the apex Court (Alom Extrusions Ltd.), on a representation made by the industry,
subsequent amendment was carried out to mitigate the difficulties caused to the employer under s.
43B of the Act. Though such contributions are not paid within the time prescribed under the relevant
Act, if those contributions are paid before the due date prescribed under s. 139(1) of the Act, the
employer shall be entitled to the deductions as provided under s. 36(1) of the Act. While extending
such benefit, the Parliament has not made any distinction between the employee’s contribution and
the employer’s contribution. It is for the simple reason, under the provident fund scheme, an
employer has to pay both the contribution and then recover from the salary of the employee.
Therefore, in view of the aforesaid judgment, we do not find any substance in this appeal.”
(Emphasis Added)
Further, in the case of EssaeTeraoka Pvt. Ltd. -vs.- DCIT (2014) 43 taxmann.com 33 (Kar.) the
Hon’ble Karnataka High Court, relying on the decision in the case of Spectrum Consultants India
(P.) Ltd (supra), held that where employer did not deposit PF/ESI contribution within due date as
contemplated under PF/ESI Scheme/Act, but deposited it before due date of filing of return of
income under section 139(1) of the Act the assessee would be entitled to deduction. The Hon’ble
Karnataka High Court held,
“Paragraph-38 of the PF Scheme provides for Mode of payment of contributions. As provided in sub-
para(1), the employer shall, before paying the member, his wages, deduct his contribution from his
wages and deposit the same together with his own contribution and other charges as stipulated
therein with the provident fund or the fund under the ESI Act within fifteen days of the closure of
every month pay. It is clear that the word “contribution” used in Clause(b) of Section 43B of the IT
Act means the contribution of the employer and the employee. That being so, if the contribution is
made on or before the due date for furnishing the return of income under sub-section(1) of Section
139 of the IT Act is made, the employer is entitled for deduction.”
(Emphasis Added)
In the case of R. Batliboi & Co -vs.- ACIT (2018) 100 taxmann.com 328 (Cal.), relying on the
decision in the case of Alom Extrusions Ltd. (supra), Vijay Shree Ltd. (supra) and Sabari
Enterprises (supra), the Hon’ble Calcutta High Court held that employees contribution to PF being
deposited before the due date of filing the return of income under section 139(1) of the Act for the
relevant year, the same was allowable. In this case the fact was that the assessee deposited PF
after expiry of the due date prescribed in the PF Act but before the due date of filing the return of
income for the relevant year.
Further, in the case of Peerless General Finance & Investment Co –vs.- CIT (2018)
100 taxmann.com 41 (Cal.) the Hon’ble Jurisdictional High Court, relying on Alom Extrusions Ltd.
(supra) and Vijay Shree Ltd. (supra), held that where assessee paid employees contribution to PF
beyond due date as per the PF Act but before the due date of filing the return of income under
section 139(1) of the Act, the same was allowable under section 43B of the Act. The Hon’ble
Jurisdictional High Court held that,
Reliance is further placed on the decision in the case of CIT -vs.- AIMIL Ltd. (2010) 188 Taxman
265 (Del.) wherein, relying on the decision in the case of CIT -vs.- Vinay Cement Ltd. (2007) 213
CTR 268 (SC), it was held that if employees contribution to PF is not deposited by the due date
prescribed under the relevant Acts and is deposited within the due date of filing the return of income
the same is allowable as deduction. The Hon’ble High Court held that,
“17. We may only add that if the employees’ contribution is not deposited by the due date prescribed
under the relevant Acts and is deposited late, the employer not only pays interest on delayed
payment but can incur penalties also, for which specific provisions are made in the Provident Fund
Act as well as the ESI Act. Therefore, the Act permits the employer to make the deposit with
some delays, subject to the aforesaid consequences. Insofar as the Income-tax Act is
concerned, the assessee can get the benefit if the actual payment is made before the return is
filed, as per the principle laid down by the Supreme Court in Vinay Cement Ltd.’s case
(supra).”
(Emphasis Added)
In the case of CIT -vs.- Kichha Sugar Co. Ltd. (2013) 35 taxmann.com 54 (Uttarakhand), the
Hon’ble High Court held that employees contribution towards PF if paid before due date of filing
return is allowable deduction. The Hon’ble High Court held that,
“Therefore, the due date referred to in section 36(1)(va) of the Act must be read in conjunction
with section 43B(b) of the Act and a reading of the same would make it amply clear that
the due date as mentioned in Section 36(1)(va), is the due date as mentioned in section
43B(b) i.e. payment/contribution made to the Provident Fund Authority any time before filing the
return for the year in which the liability to pay accrued alongwith evidence to establish payment
 thereof. The Assessing Officer proceeded on the basis that “due date”, as mentioned in
section 36(1)(va) of the Act, is the due date fixed by the Provident Fund Authority, whereas in
the matter of culling out the meaning of the word “due date”, as mentioned in the said
section, the Assessing Officer was required to take note of Section 43B(b) of the Act and by
not taking note of the provisions contained therein committed gross error……”
(Emphasis Added)
Further, the Hon’ble Rajasthan High Court in the case of CIT -vs.- State Bank of Bikaner and
Jodhpur (2014) 43 taxmann.com 411 (Raj.) held that where EPF,GPF,CPF etc. are paid after the
due date under respective Act but before the due date of filing of the return of income under section
139(1) of the Act the same cannot be disallowed under section 43B or under section 36(1)(va) of the
Act. While deciding the issue the Hon’ble High Court placed reliance on the decision in the case
of Kichha Sugar Co. Ltd. (supra).
Similar view has been taken by various High Courts in the following cases:
 CIT -vs.- Spectrum Consultants India (P.) Ltd. (2014) 49 taxmann.com 29 (Kar.)
 CIT -vs.- Rajasthan State Ganganagar Sugar Mills Ltd. (2017) 393 ITR 421 (Raj.)
 CIT -vs.- Nuchem Ltd. (2015) 59 taxmann.com 455 (P&H)
 CIT -vs.- SPL Industries Ltd (2011) 9 taxmann.com 195 (Del.)
 CIT -vs.- Nipso Polyfabriks Ltd (2013) 350 ITR 327 (HP)
 Sagun Foundry (P.) Ltd. -vs.- CIT (2017) 78 taxmann.com 47 (All.)
 Essae Teraoka (P.) Ltd. -vs.- DCIT (2014) 366 ITR 408 (Kar.)
Conculsion
Applying the ratio of the above decisions, it can be stated that when the assessee has deposited
PF/ESI before the due date of filing the return of income for the relevant year, the same would be
clearly allowable.
Hope it helps!!
In case of any further clarifications, please comment below or mail
at [email protected]. Assured reply may be expected within 1-2 days.
Limitation: The views expressed herein above are based on facts/assumptions as indicated
above. No assurance is given that the revenue/judicial authorities will concur with the above
views. The views are based on the existing provisions of law and its interpretation, which are
subject to change from time to time. No responsibility is assumed to update the views
consequent to such changes. The views should not be considered as a legal opinion.
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1.What is the due date for payment of PF & ESI under the relevant act? (including grace days)... 2.As per
Sec 36 of the IT Act, payment of employeees contribution towards ESI & PF is allowed as deduction only
when it is paid before the due dates as per the relevant acts. . Is there any amendment in this provision
like it is allowed even such contributions are paid before the due date of filing return of income. .

Read more at: https://www.caclubindia.com/experts/pf-esi-due-dates-655180.asp

DUE DATE OF PF - 15TH + 5DAYS GRACE PERIOD ESI- 21ST provided that any sum paid by the
assessee as an employer by way of contribution to any provident etc fund shall be allowed as a deduction
only if paid on or before the due date specified in 36(1)(va). After the omission of the second Proviso w.e.f
1.4.2004, the deduction is allowable under the first Proviso if the payment is made on or before the due
date for furnishing the return of income. The High Court had to consider whether the benefit of s. 43B can
be extended to employees’ contribution as well which are paid after the due date under the PF law but
before the due date for filing the return. HELD deciding in favour of the assessee:

Read more at: https://www.caclubindia.com/experts/pf-esi-due-dates-655180.asp