2021 (11) TMI 1041 - AT - Income Tax

Disallowance of delay in deposit of employee's contribution to PF/ESI u/s. 36(1)(va) - payment before the due date of filing of return of income u/s. 139(1) - HELD THAT - Principle laid down in the case of Vinay Cement Ltd. 2007 (3) TMI 346 - SC ORDER have passed series of judgment holding the same proposition that prior to the amendment brought in the statute w.e.f. 1-4-2021, no disallowance can be made that the payment to the employee's contribution to PF and ESI paid by the assessee before the due date of filing of return of income u/s. 139(1). Accordingly, we hold that no disallowance can be made in the assessment year prior to Assessment Year 2021-22. In the result, the disallowance confirmed by the Appeal Centre is deleted. - Decided in favour of assessee.

Issues Involved:

1. Disallowance of delay in deposit of employee's contribution to PF/ESI under section 36(1)(va).
2. Application of amended provisions of section 36(1)(va) and section 43B by Finance Act, 2021.
3. Jurisdictional validity of the intimation order under section 143(1).
4. Entitlement to interest under section 244A.
5. Liability towards interest charged under sections 234A, 234B, and 234C.

Detailed Analysis:

1. Disallowance of Delay in Deposit of Employee's Contribution to PF/ESI under Section 36(1)(va):

The assessee challenged the disallowance of ?88,58,042/- for the Assessment Year 2018-19 and ?2,11,28,940/- for the Assessment Year 2019-20 on account of delay in deposit of employee's contribution towards PF/ESI. The assessee argued that all payments were made within the due date of filing the return of income under section 139(1) and cited the decisions of the Hon'ble Apex Court in CIT v. Vinay Cement Ltd. and the Hon'ble Delhi High Court in CIT v. AIMIL Ltd. to support their claim.

The Tribunal noted that the disallowance was made under section 36(1)(va) and the assessee had provided a clear explanation in response to the notice issued by CPC, Bengaluru. The Tribunal observed that the intimation order was passed before the amendment in section 36(1)(va) brought by the Finance Act, 2021, which was applicable from 1st April 2021. Therefore, the Tribunal held that no disallowance could be made for the assessment years prior to Assessment Year 2021-22 if the payment was made before the due date of filing the return of income under section 139(1).

2. Application of Amended Provisions of Section 36(1)(va) and Section 43B by Finance Act, 2021:

The Tribunal discussed the amendments brought by the Finance Act, 2021, which clarified that the provisions of section 43B do not apply to employee's contributions under section 36(1)(va). The Tribunal noted that these amendments were clarificatory in nature and applicable prospectively from Assessment Year 2021-22 onwards. The Tribunal cited several judgments, including those from the Hon'ble Jurisdictional High Court, which held that the amendment could not be applied retrospectively.

3. Jurisdictional Validity of the Intimation Order under Section 143(1):

The assessee argued that the jurisdiction was not validly assumed as per law and that the disallowance did not constitute a prima facie adjustment under section 143(1)(a). The Tribunal agreed with the assessee, noting that the intimation order was passed before the amendment and that the disallowance was based on binding judicial precedents at the time of filing the return. Therefore, the Tribunal held that the disallowance could not be made merely by issuing an intimation, as it was a debatable issue.

4. Entitlement to Interest under Section 244A:

The assessee prayed for interest under section 244A relating to refunds as claimed in the return of income. However, the Tribunal did not provide a detailed analysis or ruling on this issue in the judgment.

5. Liability towards Interest Charged under Sections 234A, 234B, and 234C:

The assessee denied liability towards interest charged under sections 234A, 234B, and 234C and prayed for appropriate relief. Similar to the issue of interest under section 244A, the Tribunal did not provide a detailed analysis or ruling on this issue in the judgment.

Conclusion:

The Tribunal allowed both appeals of the assessee, holding that no disallowance could be made for the assessment years prior to Assessment Year 2021-22 if the payment of employee's contribution to PF/ESI was made before the due date of filing the return of income under section 139(1). The Tribunal emphasized that the amendments brought by the Finance Act, 2021, were prospective and could not be applied retrospectively.

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