2021 (8) TMI 1235 - AT - Income Tax

Disallowances of payment on account of payment of employees contribution to Provident Fund and ESI - Amount paid before the due date before furnishing of the return of u/s 139 of the Act but not before the respective due date as prescribed under the law - HELD THAT - The facts shows that the assessee has collected the sum being employee s contribution under the provident fund and with respect to ESI laws. The above contribution was admittedly not deposited by the assessee within the due date prescribed under the respective ESI and PF statue however same was deposited before the due date of filing of return of income - AO as well as the ld CIT(A) disallowed the same holding that such contribution becomes the income of the assessee under the provision of section 2(24)(x) of the Act and thereafter if the same is deposit within the due date prescribed under the respective laws then same is allowable as deduction u/s 36(1)(va). Addition/disallowance made by the learned assessing officer of late deposit of employees contribution to the provident fund and ESI as it is deposited before the due date of the filing of the return of an income but beyond the due date prescribed under the respective provident fund and ESI laws is not sustainable in law - Decided in favour of assessee.

Summary

Issues:
Disallowance of payment of employees' contribution to Provident Fund and ESI paid before due date but not before respective due date as prescribed under law.

Analysis:
1. The appeal was filed against the order confirming disallowances of payment of employees' contribution to Provident Fund and ESI. The assessee, engaged in developing exhibition stands, filed its return declaring income. The Assessing Officer noted the delayed deposits of ESI and PF contributions and disallowed the sum. The assessee argued citing a Supreme Court decision, but both the AO and CIT(A) upheld the disallowance.

2. Despite the absence of the assessee during the proceedings, the issue was decided on merit. The Revenue supported the lower authorities' orders, citing an explanation inserted by the Finance Act 2021. The explanation clarified that Section 43B should not be considered, supporting the Revenue's view.

3. The Tribunal reviewed the contentions and orders, noting that the contributions were deposited before the due date of filing the return of income, albeit after the statutory due date. Referring to a coordinate bench decision, it was observed that the legislative intent was to allow the deduction when payments were actually made. Citing conflicting High Court decisions, the Tribunal favored the assessee based on the latest decision.

4. Regarding the Finance Act 2021 amendment, the Tribunal examined the "Notes on clauses" and concluded that the amendment did not apply to the assessment year in question. Consequently, the Tribunal allowed the appeal, holding that the disallowance of late deposits of employees' contributions to PF and ESI was not legally sustainable.

5. In conclusion, the Tribunal allowed the solitary ground of appeal raised by the assessee, overturning the disallowance of late deposits of employees' contributions to Provident Fund and ESI. The appeal was allowed, and the order was pronounced in open court on 03/08/2021.