2022 (3) TMI 473 - AT - Income Tax

Delayed employees contribution towards ESI and PF - deposits were made before the filing of return of income - HELD THAT -There is no dispute between the parties regarding the dates of deposit of ESI and PF which clearly are beyond the prescribed date of deposit as applicable under the respective acts. However, there is no dispute between the parties that these deposits were made before the filing of return of income for the relevant assessment year. Hon'ble Allahabad High Court in the case of Sagun Foundry (P.) Ltd 2016 (12) TMI 1479 - ALLAHABAD HIGH COURT has dealt with similar issue and after taking into account the judgment of Hon'ble Supreme Court in the case of CIT vs. Alom Extrusion Ltd. 2009 (11) TMI 27 - SUPREME COURT and after taking into account views of different High Courts, has decided the similar issue in favour of the assessee .

Summary

Issues Involved:
1. Addition of ?3,16,479/- representing employees' contribution to Provident Fund (PF) and Employees' State Insurance (ESI) dues deposited beyond the due date.
2. Applicability of Section 43B for allowing deduction for such contributions.
3. Relevance of various case laws and judicial precedents.
4. Impact of the Finance Act, 2021 amendments on the applicability of Section 43B and Section 36(1)(va).

Detailed Analysis:

Issue 1: Addition of ?3,16,479/- for Late Deposits of PF and ESI Contributions
The assessee challenged the addition of ?3,16,479/- upheld by the CIT(A), arguing that although the deposits were made beyond the due dates specified in the relevant Acts, they were made before filing the return under Section 139(1) of the Income Tax Act. The CIT(A) had upheld the addition based on the late deposit of employees' contributions to PF and ESI.

Issue 2: Applicability of Section 43B
The assessee argued that the provisions of Section 43B, which allow deductions for certain expenses on an actual payment basis, should apply. The assessee relied on the Hon'ble Jurisdictional High Court's decision in Sagun Foundry (P.) Ltd. vs. CIT and the Supreme Court's decision in CIT vs. Alom Extrusions Ltd., which supported the view that contributions deposited before the filing of the return should be allowed as deductions.

Issue 3: Relevance of Various Case Laws
The assessee cited several case laws supporting their position:
1. Mahadeo Cold Storage vs. Assessing Officer (Agra Bench of the Tribunal)
2. Value Momentum Software Services Private Ltd. vs. DCIT (Hyderabad Bench of the Tribunal)
3. Adama Solution P. Ltd. vs. Asst. Director of Income Tax (Delhi Bench of the Tribunal)
4. JCIT (OSD), Circle-2, Allahabad vs Bharat Pumps & Compressors Ltd. (Allahabad Bench of the Tribunal)

The CIT(A) had relied on contrary decisions from the Gujarat High Court in Gujarat State Road Transport Corporation and the Kerala High Court in Merchem Ltd., which held that Section 43B does not apply to employees' contributions deposited beyond the due date.

Issue 4: Impact of the Finance Act, 2021 Amendments
The Finance Act, 2021 introduced amendments clarifying that Section 43B does not apply to employees' contributions, which must be deposited by the due date specified in the relevant Acts. However, the Tribunal noted that the amendment is applicable from April 2021 and does not have retrospective effect. The Tribunal also considered the Memorandum to the Finance Bill, 2021, which acknowledged that courts had previously applied Section 43B to employees' contributions and that the amendment was intended to provide certainty from the assessment year 2021-22 onwards.

Conclusion:
The Tribunal, after considering the arguments and judicial precedents, found in favor of the assessee. The Tribunal noted that the Hon'ble Allahabad High Court in Sagun Foundry (P.) Ltd. had decided a similar issue in favor of the assessee, supporting the deduction for contributions deposited before the filing of the return under Section 139(1). The Tribunal also recognized that the amendment by the Finance Act, 2021, is prospective and does not affect the relevant assessment year in this case.

Judgment:
The appeal of the assessee was allowed, and the addition of ?3,16,479/- was deleted. The Tribunal emphasized that the amendment by the Finance Act, 2021, applies from the assessment year 2021-22 and does not retroactively affect the assessment year under consideration. The order was pronounced in the open court on 08/03/2022.