2022 (2) TMI 476 - AT - Income Tax

Delayed employees contribution towards ESI/PF - failure to pay the employee s contribution of PF/ESI within the prescribed due dates as per Section 36(1)(va) - Scope of amended provisions - HELD THAT - In the instant case admittedly and undisputedly the employees contribution to ESI and PF collected by the assessee from its employees have been deposited well before the due date of filing of return of income u/s 139(1) of the Act. D/R has referred to the explanation to section 36(1)(va) and section 43B by the Finance Act 2021 and has also referred to the rationale of the amendment as explained by the Memorandum in the Finance Bill 2021 however I find that there are express wordings in the said memorandum which says these amendments will take effect from 1st April 2021 and will accordingly apply to assessment year 2021-22 and subsequent assessment years . In the instant case the impugned assessment year is assessment year 2018-19 and therefore the said amended provisions cannot be applied in the instant case. - Decided in favour of assessee.

Issues Involved:
1. Confirmation of additions in respect of employees' contribution towards ESI/PF.
2. Applicability of Section 36(1)(va) and Section 43B of the Income Tax Act.
3. Retrospective application of the amendment by Finance Act, 2021.

Issue-wise Detailed Analysis:

1. Confirmation of Additions in Respect of Employees' Contribution towards ESI/PF:
The assessee filed an appeal against the order of the CIT(A), NFAC, which confirmed the disallowance of ?17,19,909/- towards employees' contribution to ESI and EPF. The disallowance was made because the contributions were not paid within the prescribed due dates as per Section 36(1)(va) of the Income Tax Act.

2. Applicability of Section 36(1)(va) and Section 43B of the Income Tax Act:
The assessee argued that the contributions were deposited before the due date of filing the return of income, and thus, no disallowance should be made under Section 36(1)(va). The assessee relied on the decisions of the Rajasthan High Court in CIT vs. Rajasthan State Beverages Corporation Ltd. and CIT vs. State Bank of Bikaner and Jaipur, which held that contributions deposited before the due date of filing the return should not be disallowed. The Revenue, however, contended that the contributions were not made within the prescribed due dates as per Section 36(1)(va) and thus, the disallowance was justified.

The Tribunal noted that the issue was no longer res integra, given the series of decisions by the Rajasthan High Court, which consistently held that contributions paid after the due date under the respective statutes but before filing the return of income under Section 139(1) cannot be disallowed under Section 43B read with Section 36(1)(va). The Tribunal emphasized that the jurisdictional Rajasthan High Court's decisions are binding on all appellate authorities and the Assessing Officer within its jurisdiction.

3. Retrospective Application of the Amendment by Finance Act, 2021:
The Revenue argued that the amendment to Section 36(1)(va) by the Finance Act, 2021, which clarified that employees' contributions to specified funds would not be allowed as a deduction if there was any delay in deposit, should apply retrospectively. However, the Tribunal found that the explanatory memorandum to the Finance Act, 2021, explicitly stated that the amendments would take effect from 1st April 2021 and apply to the assessment year 2021-22 and subsequent years. Therefore, the Tribunal held that the amended provisions could not be applied to the assessment year 2018-19.

Conclusion:
The Tribunal directed the deletion of the addition of ?17,19,909/- made by the CPC towards the delayed deposit of employees' contributions to ESI and PF, as the contributions were paid before the due date of filing the return of income under Section 139(1). The appeal of the assessee was allowed, and the order was pronounced in the open Court on 22/12/2021.

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