2022 (2) TMI 1263 - AT - Income Tax

Delayed employees' contribution to PF and ESI within the due date - scope of amendment - HELD THAT - We hold that the amendment to section 36(1)(va) and 43B of the I.T.Act will not have application for the relevant assessment year, namely assessment year 2018-2019. Accordingly, we direct the A.O. to grant deduction in respect of employees' contribution to PF and ESI since the assessee has made the payment before the due date of filing of return u/s 139(1) of the I.T.Act. It is ordered accordingly. - Appeal of assessee allowed.

Summary

Issues:
1. Disallowance of employees' contribution to PF and ESI under section 143(1)(a)(ii) of the Income Tax Act.
2. Interpretation of provisions of section 36(1)(va) and section 43B of the Income Tax Act.
3. Applicability of recent amendments introduced by Finance Act 2021 retrospectively.
4. Consideration of judicial precedents and High Court decisions in determining the deduction of employees' contributions.
5. Binding nature of Board Circulars on appellate authorities.

Analysis:

Issue 1: Disallowance of employees' contribution to PF and ESI
The assessee appealed against the disallowance of Rs.11,05,657 under section 143(1)(a)(ii) of the Income Tax Act. The appellant contended that the contributions were remitted before the due date of filing the return, citing relevant High Court judgments. The CIT(A) upheld the disallowance, relying on the Gujarat High Court decision and the amendments to sections 36(1)(va) and 43B of the Act. The Tribunal, considering similar cases and judicial pronouncements, allowed the appeal, directing the AO to grant the deduction as the payment was made before the due date of filing the return.

Issue 2: Interpretation of provisions of section 36(1)(va) and section 43B
The Tribunal analyzed the provisions of section 36(1)(va) and section 43B of the Income Tax Act. It referred to the Essae Teraoka case and held that the assessee is entitled to deduction if the payment of employees' contribution to PF and ESI was made before the due date of filing the return under section 139(1) of the Act. The Tribunal differentiated between employees' and employer's contributions, emphasizing the timing of payment in determining eligibility for deduction.

Issue 3: Applicability of recent amendments introduced by Finance Act 2021
The Tribunal addressed the retrospective application of the amendments introduced by the Finance Act 2021 to sections 36(1)(va) and 43B of the Income Tax Act. Citing relevant judgments, the Tribunal concluded that the amendments were not retrospective and would only apply from the assessment year 2021-2022 onwards. The Tribunal referred to specific cases where similar amendments were held to be prospective in nature.

Issue 4: Consideration of judicial precedents and High Court decisions
The Tribunal extensively considered various judicial precedents and High Court decisions in determining the deduction of employees' contributions to PF and ESI. It highlighted the importance of the due date of filing the return under section 139(1) of the Act in granting deductions and emphasized the relevance of High Court judgments in interpreting the provisions of the Income Tax Act.

Issue 5: Binding nature of Board Circulars on appellate authorities
The Tribunal discussed the binding nature of Board Circulars on appellate authorities. It noted that circulars are not binding if there are contrary decisions by High Courts and the Supreme Court. The Tribunal emphasized the importance of judicial pronouncements and legal precedents over circulars in deciding tax matters.

In conclusion, the Tribunal allowed the appeal filed by the assessee, directing the AO to grant deduction for employees' contribution to PF and ESI as the payments were made before the due date of filing the return. The judgment highlighted the significance of timely payments and judicial interpretations in determining tax liabilities.