No disallowance for late deposit of employee’s contribution to ESI/PF if deposited before the due date of filing return under section 139(1)

Brief Facts:

• The A.O. (DCIT) while processing the return of income disallowed the expenditure of employee’s contribution to ESI and PF not credited to employees account on or before the due date (section 36(1) (va)).
• In appeal before the National Faceless Appeal Centre (NFAC), the assessee argued that in the Judgement of Allahabad HC in Sagun Foundry Private Limited vs. CIT (2017) Taxmann 47, it was held that even employee contribution, actually paid by the employer into the relevant fund before the due date u/s 139(1) for filing of return of income for the relevant assessment year is allowable as deduction in the relevant year.
• But the NFAC relied upon the decision of Gujarat High Court in the matter of State Road Transport Corporation (366 ITR 170) and dismissed the appeal of the assessee.
• Hence aggrieved, the assessee preferred appeal before ITAT.

Tribunal’s observation and verdict:

• It is abundantly clear that the NFAC, had relied upon the decision of Gujarat HC in the matter of State Road Transport Corporation (Supra), for the purposes of dismissing the appeal of the assessee and have ignored binding decision of the jurisdictional high court in the matter of Sagun Foundry (P) Ltd (supra).
• If there are conflicting decision of jurisdictional high court and non-jurisdictional high court, then also the jurisdictional high court decision shall be binding on the quasi-judicial authorities/ courts/ Tribunal situated within the state.
• We are of the opinion, though, centralized NFAC, had been created by the notification of CBDT, however, it should be ensured, that, whenever any appellate order is passed by NFAC either by way of draft order/ review order/ final appellate order, then the decision of jurisdictional high court, should be followed and applied by NFAC.
• Merely because there is some conflicting decision of a non-jurisdictional High Court, the relief should not be refused to the assessee.
• We are clearly of the view that law laid down by High Courts of Karnataka, Rajasthan, Punjab & Haryana, Delhi, Bombay and Himachal Pradesh (cases quoted) have rightly applied section 43B in respect to both contribution of employer as well as employee.
• In the light of the above discussion and various precedents of SC and HC, we hold that NFAC, is bound by the binding decision of the jurisdictional Allahabad High Court. Hence, we allow the appeal of the assessee by respectfully following the decision of jurisdictional High Court in the matter of Sagun Foundry (P) Ltd. (supra).

Read complete order: Mahadev Cold Storage vs. Jurisdictional Assessing Officer