2021 (11) TMI 1061 - AT - Income Tax

Delayed employees contribution towards ESI/PF - scope of amendment - HELD THAT - In the instant case admittedly and undisputedly the employees contribution to ESI and PF collected by the assessee from its employees have been deposited well before the due date of filing of return of income u/s 139(1) of the Act. Further the ld D/R has referred to the explanation to section 36(1)(va) and section 43B by the Finance Act 2021 and has also referred to the rationale of the amendment as explained by the Memorandum in the Finance Bill 2021 however we find that there are express wordings in the said memorandum which says these amendments will take effect from 1st April 2021 and will accordingly apply to assessment year 2021-22 and subsequent assessment years . In the instant case the impugned assessment year is assessment year 2018-19 and therefore the said amended provisions cannot be applied in the instant case - See SHRI GOPALAKRISHNA ASWINI KUMAR VERSUS THE ASSISTANT DIRECTOR OF INCOME TAX BENGALURU 2021 (10) TMI 952 - ITAT BANGALORE - Decided in favour of assessee.

Summary

Issues Involved:
1. Confirmation of additions in respect of employees' contribution towards ESI/PF for the assessment year 2018-19.
2. Applicability of Section 36(1)(va) and Section 43B of the Income Tax Act.
3. Retrospective applicability of the amendment introduced by the Finance Act, 2021.

Issue-wise Detailed Analysis:

1. Confirmation of Additions in Respect of Employees' Contribution towards ESI/PF:
The assessee filed a return of income on 31.10.2018 declaring a total income of Rs. 2,02,44,243/-. The Centralized Processing Centre (CPC) made a disallowance of Rs. 5,69,094/- towards employees' contribution to ESI and PF, citing that the contributions were not paid within the prescribed due dates as per Section 36(1)(va) of the Income Tax Act. The CIT(A), NFAC, confirmed this disallowance. The assessee appealed against this order, arguing that the contributions were deposited before the due date for filing the return of income, thus no disallowance should be made under Section 36(1)(va) of the Act.

2. Applicability of Section 36(1)(va) and Section 43B of the Income Tax Act:
The assessee contended that the contributions were deposited before the due date for filing the return of income under Section 139(1) of the Act, relying on various High Court decisions, including CIT vs. Rajasthan State Beverages Corporation Ltd. and CIT vs. State Bank of Bikaner and Jaipur. The Revenue, however, argued that the contributions were not made within the prescribed due dates under Section 36(1)(va) and thus were rightly disallowed. The Tribunal noted that the issue was no longer res integra, referring to various decisions by the Hon’ble Rajasthan High Court, which consistently held that contributions made before the due date of filing the return of income under Section 139(1) cannot be disallowed under Section 43B read with Section 36(1)(va) of the Act.

3. Retrospective Applicability of the Amendment by the Finance Act, 2021:
The Revenue argued that the amendment to Section 36(1)(va) by the Finance Act, 2021, which clarified that employees' contributions must be paid within the due dates specified under the respective welfare funds, should apply retrospectively. However, the Tribunal found that the explanatory memorandum to the Finance Act, 2021, explicitly stated that the amendments would take effect from 1st April 2021 and apply to the assessment year 2021-22 and subsequent years. Therefore, the amendment could not be applied retrospectively to the assessment year 2018-19.

Conclusion:
The Tribunal concluded that since the employees' contributions to ESI and PF were deposited before the due date for filing the return of income under Section 139(1), the disallowance made by the CPC and confirmed by the CIT(A) was not in accordance with the law. The Tribunal directed the deletion of the addition of Rs. 5,69,094/-. The appeal of the assessee was allowed. The order was pronounced in the open Court on 15/11/2021.