2022 (5) TMI 1433 - AT - Income Tax

Disallowing employee's contribution u/s 36(l)(v) - delay in deposit of Employees Provident Fund contribution - adjustment u/s 143(1) - scope of amendment of the Finance Act, 2021 - HELD THAT - CBDT Circular No. 581 dated 28-9-1990 makes it clear that the Board has viewed the scope of the powers to make prima facie adjustments under section 143(1)(a) as co-terminus with the power to rectify a mistake apparent from the record under section 154 - in the instance of the facts the Ld. CIT(A) has not erred in facts and law in confirming the disallowance of late deposit of employees Provident fund contribution under section 36(1)(va) of the Act. The Supreme Court in the case of ACIT v. Saurashtra Kutch Stock Exchange Ltd 2008 (9) TMI 11 - SUPREME COURT has held that not following decision of the Supreme Court or the jurisdictional High Court would constitute a mistake apparent from record. Since, admittedly the jurisdictional High Court in case of Gujarat State Road Transport Corporation 2014 (1) TMI 502 - GUJARAT HIGH COURT has directly ruled on this issue against the assessee and has held that employees' contribution to specified fund will not be allowed as deduction u/s.36(1)(va) if there is delay in deposit as per the due dates mentioned in the respective legislation, in our view, the Department is bound to follow the decision of the jurisdictional High Court. Perhaps, it would have been a different factual situation in case the jurisdictional High Court had decided the issue on late deposit of employee s Provident fund in favour of the assessee or there would have been no jurisdictional High Court decision on this issue, in which case, in our view, the issue could have been debatable. So far as the present facts are concerned, in our considered view, Ld. CIT(A) has not erred in facts and law in coming to the conclusion that disallowance made by the CPC u/s 143(1) of the I.T. Act on account of appellant's failure to pay the employee's contribution of PF/ESI within the prescribed due dates as per section 36(1)(va) is strictly in accordance with law. - Decided against assessee.

Summary

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Disallowance of employee's contribution to Provident Fund and ESI under section 36(1)(va) of the Income Tax Act.
3. Applicability of amendments introduced by the Finance Act, 2021 to the assessment year 2019-20.

Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:
The appeal was delayed by 16 days. The tribunal referred to the Supreme Court's decision in Collector, Land Acquisition v. Mst. Katiji, which emphasized a liberal approach towards condoning delays, especially when substantial justice is at stake. The court highlighted that refusing to condone the delay could result in a meritorious case being dismissed prematurely. Consequently, the tribunal condoned the delay of 16 days in the interest of justice.

2. Disallowance of Employee's Contribution to Provident Fund and ESI:
The assessee firm, engaged in providing manpower services, had delayed depositing employee contributions to Provident Fund and ESI, totaling Rs. 8,85,284/-. The Centralized Processing Centre (CPC) made an addition under section 143(1) due to this delay. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the disallowance, referencing various judicial decisions, including the Gujarat High Court's ruling in Commissioner of Income Tax II Vs Gujarat State Road Transport Corporation, which clarified that employee contributions must be credited by the due date specified in the relevant legislation to qualify for deduction under section 36(1)(va).

The CIT(A) also noted that the Finance Act, 2021 amendments, which explicitly state that section 43B does not apply to employee contributions, were clarificatory and thus retrospective. The CIT(A) concluded that the disallowance by the CPC was in accordance with the law, as the amendments merely clarified the existing legal position.

3. Applicability of Amendments Introduced by the Finance Act, 2021:
The assessee argued that the adjustments under section 143(1)(a) should only address non-ambiguous issues and that the disallowance of delayed employee contributions was a contentious issue, thus falling outside the scope of section 143(1)(a). The assessee contended that the Explanation 2 to section 36(1)(va), introduced by the Finance Act, 2021, was prospective and should not apply to the assessment year 2019-20.

However, the tribunal, referencing the Supreme Court's decision in ACIT v. Saurashtra Kutch Stock Exchange Ltd, held that non-consideration of jurisdictional High Court decisions constitutes a 'mistake apparent from record.' The tribunal emphasized that the Gujarat High Court had directly ruled against the assessee on this issue, mandating the disallowance of employee contributions if not deposited by the due dates specified in the relevant legislation. Therefore, the tribunal concluded that the CIT(A) had not erred in confirming the disallowance under section 36(1)(va).

Conclusion:
The tribunal dismissed the appeal, confirming that the disallowance of Rs. 8,85,284/- for delayed employee contributions to Provident Fund and ESI was justified. The tribunal upheld the CIT(A)'s decision, emphasizing adherence to the jurisdictional High Court's ruling and clarifying that the amendments introduced by the Finance Act, 2021, were retrospective and applicable to the assessment year in question. The appeal was dismissed in its entirety.