2021 (12) TMI 1071 - AT - Income Tax

Late deposit of employees share of PF ESI which were deposited after the due date but before the due date of filing of return of income - AO made the additions of the impugned amounts for the reasons that the assessee did not deposit the amounts of employees contribution as per the provisions of section 36(1)(va) - HELD THAT - As decided in RAJA RAM VERSUS THE ITO WARD 3 AND SANCHI MANAGEMENT SERVICES PRIVATE LIMITED VERSUS THE ITO WARD 5 (2) CHANDIGARH 2021 (11) TMI 370 - ITAT CHANDIGARH assessee deposited the contribution of PF ESI belated in terms of section 36(1)(va) of the Act however the said deposits were made prior to filing of return of income u/s 139(1). Impugned additions made by the Assessing Officer and sustained by the Ld. CIT(A) on account of deposits of employees contribution of ESI PF prior to filing of the return of income u/s 139(1) of the Act in both the years under consideration prior to the amendment made by the Finance Act 2021 w.e.f. 1.4.2021 vide Explanation 5 are deleted. - Decided in favour of assessee

Issues Involved:
1. Disallowance of expenditure claimed on account of deposit in EPF/ESI as employees' share.
2. Whether the delayed payment towards employees' share in EPF/ESI is deductible.
3. Consideration of various High Court and Jurisdictional Tribunal decisions regarding delayed payments.
4. Sustaining the addition of ?2,79,560/- despite the decision of the Jurisdictional High Court.
5. Reliance on the amendment made by the Finance Act 2021 and its retrospective application.

Detailed Analysis:

1. Disallowance of Expenditure Claimed on Account of Deposit in EPF/ESI as Employees' Share:
The assessee contested the disallowance of ?2,79,560/- (?85,458/- ESI and ?1,94,102/- EPF) made by the Assessing Officer (A.O.) for late payments towards EPF and ESI under section 36(1)(va) of the Income Tax Act, 1961. The Ld. CIT(A) upheld this disallowance, leading to the present appeal.

2. Whether the Delayed Payment Towards Employees' Share in EPF/ESI is Deductible:
The appellant argued that the issue of delayed payment towards employees' share in EPF/ESI is debatable and beyond the scope of processing under section 143(1) r.w.s. 154. The Tribunal referred to previous cases, including Raja Ram Vs. ITO and Sanchi Management Services Private Limited Vs. ITO, where it was held that contributions made before the filing of the return of income under section 139(1) are deductible.

3. Consideration of Various High Court and Jurisdictional Tribunal Decisions:
The assessee cited decisions from various High Courts and the Jurisdictional Tribunal, which held that delayed payments made before the filing of returns are deductible. The Tribunal noted that similar issues had been adjudicated by different Benches of the ITAT, including the Kolkata and Jodhpur Benches, which supported the assessee's position.

4. Sustaining the Addition of ?2,79,560/- Despite the Decision of the Jurisdictional High Court:
The Tribunal highlighted that the Ld. CIT(A) disregarded the decision of the Jurisdictional Hon'ble Punjab & Haryana High Court in CIT, Faridabad Vs. Hernia Embroidery Mills (P) Limited, which allowed deductions for payments made before the filing of returns. The Tribunal found this to be unjustified.

5. Reliance on the Amendment Made by the Finance Act 2021 and Its Retrospective Application:
The Ld. CIT(A) relied on the amendment made by the Finance Act 2021, assuming it to be retrospective. However, the Tribunal clarified that the amendment is effective from 01.04.2021 and does not apply retrospectively. The Tribunal referred to the ITAT Kolkata Bench's decision in Harendra Nath Biswas vs. DCIT, which stated that the amendment is not retrospective and the law laid down by the Jurisdictional High Court should apply.

Conclusion:
The Tribunal, after considering the submissions and the material on record, concluded that the disallowance sustained by the Ld. CIT(A) was not justified. The Tribunal followed the decisions of various Benches of the ITAT and the Jurisdictional High Court, which allowed deductions for delayed payments made before the filing of returns. Therefore, the Tribunal deleted the impugned additions made by the Assessing Officer and sustained by the Ld. CIT(A) on account of deposits of employees' contribution of ESI & PF. The appeal of the assessee was allowed.

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