2022 (3) TMI 1415 - AT - Income Tax

Late deposit of employees share of ESIC/PF - Addition u/s 36(1)(va) - HELD THAT - It is seen that the issue under consideration is no more res integra in view of the judgment of the Hon ble Bombay High Court in CIT Vs. Ghatge Patil Transports Ltd. 2014 (10) TMI 402 - BOMBAY HIGH COURT in which it has been held that deduction for payment of employees contribution cannot be disallowed in case the contribution of employees share in the Welfare Funds got credited on or before the due date. Finance Act 2021 has inserted Explanation 2 below section 36(1)(va) providing that the provisions of section 43B shall not apply for the purpose of determining the due date under this clause w.e.f. 01.04.2021. The effect of this amendment is that if the amount of employees contribution towards EPF ESIC etc is delayed by an employer beyond the due date under the respective Acts the disallowance will be called for notwithstanding the fact that it was deposited before the due date u/s 139 of the Act. Memorandum explaining the provisions of the Finance Bill 2021 provides that this amendment will take effect from 1st April 2021 and will accordingly apply in relation to assessment year 2021-2022 and subsequent assessment years. Since the assessment year under consideration namely 2017- 18 is anterior to the amendment carried out with effect from A.Y. 2021-22 we hold that the position of law as set out by various including Ghatge Patil Transports Ltd. (supra) squarely applies to the facts and circumstances of the instant case thereby not warranting any disallowance as the amount in question was admittedly deposited before due date u/s 139(1) of the Act. The addition is therefore directed to be deleted. - Decided in favour of assessee.

Summary

Issues:
1. Addition of late deposit of employees' share of ESIC/PF for A.Y. 2018-19.
2. Interpretation of section 36(1)(va) of the Income-tax Act, 1961.
3. Impact of the judgment of the Hon'ble Bombay High Court in CIT Vs. Ghatge Patil Transports Ltd.
4. Effect of the amendment introduced by the Finance Act, 2021 on Explanation 2 below section 36(1)(va).
5. Disallowance of employees' contribution towards EPF, ESIC, etc.
6. Similarity of facts and circumstances between A.Y. 2018-19 and 2019-20.
7. Deletion of disallowance for A.Y. 2019-20.

Analysis:

1. The appeals by the assessee for A.Y. 2018-19 and 2019-20 concern the addition of late deposit of employees' share of ESIC/PF. The issue revolves around the disallowance made by the Assessing Officer (AO) under section 36(1)(va) of the Income-tax Act, 1961. The assessee contended that the delayed amount was deposited before filing the return of income u/s.139(1) of the Act.

2. The judgment of the Hon'ble Bombay High Court in CIT Vs. Ghatge Patil Transports Ltd. (2014) 368 ITR 749 (Bom.) plays a crucial role in the analysis. The High Court held that deduction for payment of employees' contribution cannot be disallowed if the contribution got credited on or before the due date. This precedent supports the assessee's case in the present scenario.

3. The Finance Act, 2021 introduced an amendment through Explanation 2 below section 36(1)(va), exempting the provisions of section 43B for determining the due date. This amendment, effective from 01.04.2021, impacts the disallowance of employees' contribution towards EPF, ESIC, etc. However, for the assessment year 2018-19, the law prior to this amendment applies, as the assessment year predates the legislative change.

4. Considering the similarity of facts and circumstances between A.Y. 2018-19 and 2019-20, the ITAT Pune, through Vice President Shri R.S. Syal, ordered the deletion of the disallowance for both years. The late deposit of the employees' share of contribution of ESIC/EPF, though made before the due date u/s.139(1) of the Act, did not warrant disallowance based on the existing legal position.

5. The consolidated order for both appeals highlights the consistent application of legal principles and precedents to ensure fairness and adherence to the law. The judgment emphasizes the importance of timely compliance with statutory requirements while also recognizing the impact of legislative amendments on tax assessments.