2021 (6) TMI 1118 - AT - Income Tax

Delayed payment/contribution of employees share made to the PF ESI authority - scope of amendment - HELD THAT - We notice in the factual backdrop that the legislature has not only incorporated necessary amendment in Sections 36(va) as well as 43B vide Finance Act, 2021 to this effect but also the CBDT has issued Memorandum of Explanation that the same applies w.e.f. 1.4.2021 only. It is further not an issue that the foregoing legislative amendments have proposed employers contribution/ disallowance u/s 43B as against employee s contribution u/s 36 (va) of the Act; respectively. However, keeping in mind the fact that the same has been clarified to be applicable only with prospective effect from 1.4.2021, we hold that the impugned disallowance is not sustainable. See M/S MERCHEM LIMITED 2015 (9) TMI 560 - KERALA HIGH COURT , GUJARAT STATE ROAD TRANSPORT CORPORATION 2014 (1) TMI 502 - GUJARAT HIGH COURT , GTN. TEXTILES LTD. 2002 (10) TMI 9 - KERALA HIGH COURT , SOUTH INDIA CORPORATION LTD. 1999 (10) TMI 44 - KERALA HIGH COURT and JAIRAM AND SONS. 2003 (10) TMI 16 - KERALA HIGH COURT The impugned ESI/PF disallowance is directed to be deleted therefore. - Decided in favour of assessee.

Summary

Issues:
1. Deductibility of employees' share payment to PF & ESI authority under sec. 36(1)(va) and sec. 43B(b).
2. Impact of CBDT Circular no. 22/2015 on sec. 43B disallowance under sec. 36(1)(va).
3. Disallowance of ESI/PF contribution under sec. 36(va) and sec. 43B.

Analysis:
The appeal involved the question of whether the payment/contribution of employees' share to the PF & ESI authority before the due date of filing the return for the year is eligible for deduction under sec. 36(1)(va) read with sec. 43B(b). The assessee argued that the CBDT Circular no. 22/2015 cannot override sec. 43B, thus no disallowance should be made under sec. 36(1)(va). The Tribunal considered the legislative amendments brought by the Finance Act, 2021, and the CBDT's Memorandum of Explanation clarifying the applicability of these amendments from 1.4.2021. It was noted that the amendments proposed employers' contribution disallowance under sec. 43B instead of employees' contribution under sec. 36(va). The Tribunal held that the impugned disallowance of ESI/PF contribution was not sustainable in light of these developments, even though the Revenue's case was supported by various case laws.

The Tribunal specifically addressed the issue of ESI/PF disallowance amounting to Rs. 2,11,750. Both the assessee and the Revenue contended that the payment was made before the due date of filing the return under sec. 139(1) but after the due date prescribed in the respective statutes. The Tribunal emphasized that the legislative amendments and the CBDT's clarification applied prospectively from 1.4.2021. Despite the Revenue's reliance on case laws, the Tribunal held that the impugned disallowance should be deleted. Consequently, the Tribunal allowed the assessee's appeal on these grounds, pronouncing the order in Open Court on 29/06/2021.