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2022 (2) TMI 1224 - AT - Income TaxDelay in depositing the employee s contribution of ESI and EPF - amounts have been paid beyond the due date as prescribed in the ESI PF Act under the IT Act but deposited before the due date of filing of return for the respective Assessment Years - HELD THAT - Having gone through the Orders of the Co-ordinate Bench of Tribunal allowing the delayed payment pertaining to employees contribution, Orders of the Co-ordinate Bench of Tribunal disallowing the delayed payment pertaining to employees contribution, Judgments of various Hon ble Courts disallowing the delayed payment, Judgments of various Hon ble Courts disallowing the delayed payment, provisions of Section 2(24)(x), Section 36(1)(va), Section 43B, Section 139(1) of the Income Tax Act, 1961, provisions of Finance Act 2021, Memorandum explaining the provisions in Finance Bill, 2021 and the specific amendments which will take effect from 01.04.2021, we hereby hold that no disallowance is called for belated payment of the employee s contribution to the respective ESI and EPF fund in the case of assessee who have deposited the same before the due date of filing of Income Tax Return. - Decided in favour of assessee.
Issues Involved:
Allowability of contribution received from employees towards ESI and EPF under Section 36(1)(va) of the Income Tax Act, 1961. Detailed Analysis: 1. Disallowance under Section 36(1)(va): The primary issue in these appeals is the disallowance of contributions received from employees towards ESI and EPF due to delays in depositing these amounts. The disallowance was made under Section 36(1)(va) of the Income Tax Act, 1961, by the DCIT/ACIT/ITD, CPC, Bangalore, because the contributions were not deposited within the due dates prescribed under the ESI and PF Acts. However, there is no dispute that these amounts were deposited before the due date of filing the income tax return for the respective assessment years. 2. Tribunal's View on Allowability: The Tribunal has consistently held that the employee’s contributions to PF and ESI, if paid before the due date of filing the Income Tax Return under Section 139(1), are allowable deductions. This view has been supported by various orders from different benches of the Tribunal, including ITAT Hyderabad, ITAT Delhi, ITAT Chennai, and ITAT Agra, among others. 3. High Court Judgments: Several High Courts have delivered judgments on this issue, with varying interpretations: - Madras High Court: Held that Section 43B and Section 36(1)(va) serve different purposes and should not be read together to determine the allowability of deductions for belated payments. - Kerala High Court: Emphasized the distinction between employer and employee contributions, ruling that Section 36(1)(va) must be complied with for employee contributions. - Bombay High Court: Allowed deductions under Section 43B for both employer and employee contributions if deposited before the due date of filing the return. - Gujarat High Court: Held that deductions for employee contributions are not allowable if not deposited by the due date prescribed in the relevant Acts, even if deposited before the due date under Section 43B. 4. Recent Amendments and Legislative Intent: The Finance Act, 2021, introduced amendments to clarify that the provisions of Section 43B do not apply to employee contributions under Section 36(1)(va). The Memorandum explaining the Finance Bill, 2021, highlighted that employee contributions are the employees' money held by the employer in a fiduciary capacity, and late deposits unjustly enrich the employer. Therefore, stringent compliance with the due dates under Section 36(1)(va) is necessary. 5. Precedential Value and Judicial Discipline: The Tribunal emphasized the importance of following precedents and maintaining judicial discipline. It referred to various judgments, including those of the Hon’ble Supreme Court and High Courts, to underline the binding nature of higher court decisions on lower authorities. 6. Conclusion: After considering the conflicting judgments, legislative amendments, and the principle of judicial discipline, the Tribunal concluded that no disallowance is warranted for belated payments of employee contributions to ESI and EPF if these are deposited before the due date of filing the Income Tax Return under Section 139(1). Consequently, the appeals of the assessee were allowed, and the appeals of the Revenue were dismissed. Order Pronounced: The order was pronounced in the open court on 28/02/2022.
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