2022 (2) TMI 1145 - AT - Income Tax

Delay in deposit of employees contribution to PF ESI - employees contribution to PF ESI was duly deposited on or before the due date of filling return of income u/s 139(1) - HELD THAT - As decided in PRO INTERACTIVE SERVICE (INDIA) PVT. LTD. 2018 (9) TMI 2009 - DELHI HIGH COURT in view of the judgement of the Division Bench of Delhi High Court in Commissioner of Income Tax versus AIMIL Limited, 2009 (12) TMI 38 - DELHI HIGH COURT the issue is covered against the Revenue and, therefore, no substantial question of law arises for consideration in this appeal. The legislative intent was/is to ensure that the amount paid is allowed as an expenditure only when payment is actually made. We do not think that the legislative intent and objective is to treat belated payment of Employee s Provident Fund (EPD) and Employee s State Insurance Scheme (ESI) as deemed income of the employer under section 2(23)(x) of the Act - Decided in favour of assessee.

Issues:
1. Addition of delayed deposit of employees' contribution to PF & ESI under section 143(1)
2. Interpretation of Section 43B(b) and Section 36(1)(va) of the Income Tax Act, 1961
3. Applicability of judicial precedents from different High Courts
4. Impact of the Finance Act, 2021 on the assessment year 2019-20

Issue 1: Addition of delayed deposit of employees' contribution to PF & ESI under section 143(1)

The appeal concerned the addition of ?11,45,054 made in the intimation under section 143(1) due to a delay in depositing employees' contribution to PF & ESI. The appellant contended that the contributions were deposited before the due date of filing the return under section 139(1). However, the CIT(A)-NFAC upheld the addition, citing the specific provisions of the Employees' Provident Funds Act and ESI Act. The Tribunal analyzed the issue in light of the provisions of the Act and relevant case law, ultimately deciding in favor of the appellant, directing the Assessing Officer to delete the disallowance.

Issue 2: Interpretation of Section 43B(b) and Section 36(1)(va) of the Income Tax Act, 1961

The Tribunal delved into the interpretation of Section 43B(b) and Section 36(1)(va) concerning the allowability of deductions for delayed deposits of employees' contributions to PF & ESI. The insertion of Explanation 5 to Section 43B by the Finance Act, 2021 clarified the distinction between employer and employee contributions towards welfare funds. The Tribunal discussed the due date for depositing employee contributions and highlighted the retrospective nature of the amendment. By analyzing various judicial precedents and amendments to the Act, the Tribunal concluded that the delayed deposit of employee contributions cannot be considered an eligible deduction under Section 36(1)(va), leading to the allowance of the appeal.

Issue 3: Applicability of judicial precedents from different High Courts

The appellant relied on judicial precedents from different High Courts to support their grounds of appeal. However, the Tribunal emphasized the importance of jurisdictional High Court decisions and the specific amendments made to the Act. By distinguishing between employer and employee contributions, the Tribunal concluded that the non-applicability of Section 43B to employees' contributions necessitated a different interpretation. The Tribunal aligned its decision with the legislative intent and objective, as highlighted in the binding precedents of the jurisdictional High Court, ultimately directing the deletion of the disallowance.

Issue 4: Impact of the Finance Act, 2021 on the assessment year 2019-20

The Tribunal addressed the impact of the Finance Act, 2021 on the assessment year 2019-20, particularly the amendment brought in by the Act in the provisions of Section 36(1)(va). By considering the retrospective nature of the amendment and the clarity provided through the explanations, the Tribunal determined that the delayed deposit of employee contributions to PF & ESI before the due date of filing the return under section 139(1) should not lead to disallowances. This analysis contributed to the Tribunal allowing the appeal and directing the deletion of the disallowance amount.

This detailed analysis of the judgment highlights the key issues involved, the legal interpretations made by the Tribunal, and the impact of relevant provisions and amendments on the final decision.

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