2022 (2) TMI 1227 - AT - Income Tax

Late payments towards EPF and ESI under section 36(1)(va) - Contribution before furnishing the return of income - 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 Thus addition so made by the CPC towards the deposit of the employees s contribution towards ESI and PF though paid before the due date of filing of return of income u/s 139(1) of the Act is hereby directed to be deleted. - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance under Section 36(1)(va) of the Income Tax Act, 1961.
2. Imposition of interest due to disallowance.
3. Delay in filing the appeal.

Detailed Analysis:

1. Disallowance under Section 36(1)(va) of the Income Tax Act, 1961:
The primary issue in these appeals revolves around the disallowance of Rs. 9,55,353/- made by the Assessing Officer (AO) under Section 36(1)(va) of the Income Tax Act, 1961, due to late payments towards Employees' Provident Fund (EPF) and Employees' State Insurance (ESI). The AO added this amount to the income of the assessee. The disallowance was sustained by the Commissioner of Income Tax (Appeals) [CIT(A)], National Faceless Appeal Centre (NFAC), Delhi.

The assessee argued that although there was a delay in depositing the employee’s contribution of PF/ESI beyond the due dates mentioned in the respective Acts, the deposits were made before the due date for filing the return of income under Section 139(1). The assessee cited the Rajasthan High Court decisions in CIT vs. Rajasthan State Beverages Corporation Ltd. and CIT vs. State Bank of Bikaner and Jaipur to support their claim that no disallowance should be made if the contributions are deposited before the due date of filing the return.

The Revenue countered that the disallowance was justified as the payments were not made within the prescribed due dates under Section 36(1)(va) and relied on the amendment introduced by the Finance Act, 2021, which clarified that such contributions must be deposited within the due dates mentioned in the respective legislation.

2. Imposition of Interest Due to Disallowance:
The AO also imposed interest of Rs. 46,946/- due to the disallowance under Section 36(1)(va). The assessee contested this imposition, arguing that the contributions were made before the due date for filing the return of income, and thus, no interest should be levied.

3. Delay in Filing the Appeal:
There was a delay of four days in filing the appeal. The assessee referenced the Hon’ble Supreme Court's order dated 10/01/2022, which extended the limitation period for judicial and quasi-judicial proceedings due to the COVID-19 pandemic. The Supreme Court's order excluded the period from 15/03/2020 to 28/02/2022 from the limitation period. Consequently, the Tribunal admitted the appeal, holding that it was not barred by limitation.

Tribunal's Findings and Judgement:
The Tribunal analyzed the arguments and evidence presented by both parties. It referenced the decision of the Coordinate Bench in the case of Mohangarh Engineers and Construction Company vs. DCIT, CPC, which dealt with a similar issue. The Tribunal noted that the employees’ contributions to ESI and PF were deposited before the due date for filing the return of income under Section 139(1).

The Tribunal highlighted the consistent decisions of the Hon’ble Rajasthan High Court, which held that contributions deposited before the due date of filing the return cannot be disallowed under Section 43B or Section 36(1)(va). The Tribunal also considered the explanatory memorandum to the Finance Act, 2021, which stated that the amendments would apply from 1st April 2021 and thus, would not affect the assessment year in question (2018-19).

The Tribunal concluded that the disallowance made by the CPC under Section 143(1) was not justified, as the contributions were deposited before the due date of filing the return of income. Consequently, the addition of Rs. 9,55,353/- was directed to be deleted.

Conclusion:
The appeal of the assessee was allowed, and the disallowance under Section 36(1)(va) was deleted. The Tribunal's findings in ITA No. 160/JP/2021 were applied mutatis mutandis to the other appeals, leading to the allowance of all the appeals. The Tribunal pronounced the order in the open Court on 28/02/2022.