2022 (2) TMI 762 - AT - Income Tax

Disallowance towards Employees contribution to EPF/ESIC which was deposited belatedly but before the time limit prescribed u/s. 139(1) - HELD THAT - It is an admitted position that the assessee did deduct employees' share of EPF and ESI but paid the same after the due date under the respective legislations but before the time for filing return u/s. 139(1) - In our opinion, this issue is no more res integra in view of several judgments allowing deduction u/s. 36(1)(va) of employees' share of contribution deposited after due date under the respective Acts but before the date prescribed u/s. 139. 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, ESI, 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, 2018-19 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 Hon'ble High Courts including the one in CIT vs. Nipso Polyfabriks Ltd 2012 (11) TMI 592 - HIMACHAL PRADESH HIGH COURT squarely applies to the facts and circumstances of the instant case, thereby not warranting any disallowance since 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:
- Disallowance of employees' contribution to EPF/ESIC deposited belatedly but before the time limit prescribed u/s. 139(1) of the Act.

Analysis:
1. Assessment Year 2018-19:
- The issue raised was against the disallowance of employees' contribution to EPF/ESIC amounting to ?5,25,409/- deposited after the due date but before the time limit under section 139(1) of the Act.
- The CIT(A) confirmed the disallowance under section 36(1)(va) of the Act.
- The Tribunal referred to past judgments allowing deductions for such contributions deposited after the due date but before the filing deadline under section 139(1) of the Act.
- Citing the decision of the Himachal Pradesh High Court, it was held that both employees' and employer's contributions are deductible if paid before the due date.
- The Tribunal noted the amendment in the Finance Act, 2021, which clarified the due date for such contributions, but since the assessment year was prior to this amendment, the deduction was allowed, and the addition was directed to be deleted.

2. Assessment Year 2019-20:
- Similar to the previous year, the issue involved the disallowance of employees' contribution to EPF/ESIC amounting to ?2,10,940/- deposited late.
- The AO disallowed the contribution, and the CIT(A) upheld the disallowance.
- Following the same reasoning as in the earlier year, the Tribunal ordered the deletion of the addition for this assessment year as well.

3. Conclusion:
- Both appeals were allowed, and the additions for the disallowed contributions were deleted for both assessment years 2018-19 and 2019-20.
- The Tribunal emphasized the importance of the due date under section 139(1) of the Act for allowing deductions related to employees' contributions to EPF/ESIC, especially considering the amendments introduced by the Finance Act, 2021.

This comprehensive analysis of the judgment highlights the key issues, legal interpretations, and the final decision made by the Appellate Tribunal ITAT Pune regarding the disallowance of employees' contributions to EPF/ESIC deposited belatedly but before the prescribed time limit under the Income Tax Act.