2021 (6) TMI 1142 - AT - Income Tax

ESI/PF disallowance - Assessee s and revenue s plea that the same has been paid before the due date of filing sec. 139(1) return and after the due date prescribed in the corresponding statutes; respectively - HELD THAT - Legislature has not only incorporated necessary amendments 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 employer s contribution; disallowance u/s 43B as against employee s contribution u/s 36 (va) respectively. 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. The impugned ESI/PF disallowance is directed to be deleted therefore. Decided in favour of assessee.

Summary

Issues:
1. Disallowance of payment of employee contribution of PF and ESI.

Analysis:
The appeal for the assessment year 2018-19 was filed against the order of the Commissioner of Income Tax (Appeals) in Hyderabad. The appellant raised various grounds challenging the disallowance of payment of employee contribution towards PF and ESI amounting to Rs. 40,31,798. The appellant argued that the CIT (A) erred in dismissing the appeal without providing a reasonable opportunity to be heard. The appellant contended that the provisions of section 43B of the Income Tax Act should allow the payments made before the due date of filing the return of income. The appellant also emphasized that the provisions of section 43B do not differentiate between employer's and employee's contributions. The appellant presented evidence of timely payments and argued that such payments should be deductible under section 43B. The appellant further highlighted that recent legislative amendments and CBDT clarifications support their position. The Tribunal considered relevant case laws and held that the disallowance of ESI/PF payments is not sustainable, directing the deletion of the disallowance.

In conclusion, the Tribunal allowed the appellant's appeal, emphasizing that the impugned disallowance of ESI/PF contributions should be deleted based on the legislative amendments and clarifications. The Tribunal noted that the amendments introduced by the Finance Act, 2021, and the CBDT's memorandum of explanation support the deductibility of payments made before the due date of filing the return of income. The Tribunal also highlighted that recent developments in the law render the disallowance unsustainable, despite the Revenue's arguments and cited case laws supporting their position. The Tribunal's decision was pronounced in open court on 29/06/2021.