Section 36(1)(va) read with section 2(24) (x) of the Income-tax Act, 1961 – Business Expenditure – Finding recorded by the Tribunal that if wages are paid for the following month, the liability to deposit the employee's contribution to the fund gets differed by another month is not the correct statement of law.

Facts: Assessment of the assessee was completed under section 143(3) and  a disallowance of employees' contributions towards provident fund and ESI amounting to Rs. 1,16,87,091/was made. This was on account of the fact that the assessee though had deducted such contributions, failed to deposit the same with the statutory authorities within the due date. AO referred to all such deductions and late depositing the contributions in the order of assessment. All these deposits would indicate that the assessee had made the deposits late beyond 20th of Month following the month for which such deduction was being made. The date of 20th of each month was chosen by the Assessing Officer was made considering the normal period of 15 days for making deposit and a further grace period of five days specified under the statute. Since the assessee was delayed in making the deposits even beyond such extended period, AO applied the disallowance in terms of section 36(1)(va).

Held, that section 38 of the Employees Provident Funds and Miscellaneous Provisions Act, 1952 makes it obligatory for the employer before paying him his wages to deduct the employee's contribution along with the employer's own contribution as fixed by Government. The employer is further obliged to pay the same within fifteen days of the close of every month pay i.e. such contribution and administrative charges. The reference to fifteen days of the close of the month must be in relation to month during which the payment of wages is to be made and corresponding liability to deduct employee's contribution to the fund arises. This Court held that the expression "within fifteen days of the close of every month" therefore, must be interpreted as having reference to the close of the month, for which, the wages are required to be paid with corresponding duty to deduct employee's contribution and to deposit the same in the fund. In such circumstances referred to above, the finding recorded by the Tribunal that if such wages are paid for the following month, the liability to deposit the employee's contribution to the fund gets differed by another month is not the correct statement of law.The substantial question of law is answered accordingly in favour of the Revenue. – PR. CIT Vs. SUZLON ENERGY LTD. [2020] 423 ITR 608 (GUJ)