2022 (3) TMI 522 - AT - Income Tax

Delay in deposit of employees contribution related to EPF ESI - HELD THAT - As decided in case of PCIT vs 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 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) - Decided in favour of assessee.

Summary

Issues:
1. Opportunity of being heard not provided by AO.
2. Invocation of section 143(1) for adjustment of ESI and EPF.
3. Disallowance of employee contribution to provident fund and ESI.

Analysis:

Issue 1:
The appellant contended that the Assistant Director of Income Tax, CPC, Bangalore erred in not providing the opportunity of being heard on the debatable issue. However, no representation was made on behalf of the assessee during the hearing. The Tribunal proceeded with the appeal in the absence of the assessee.

Issue 2:
The core issue revolved around the adjustment of employee contributions to Employee State Insurance (ESI) and Employee Provident Fund (EPF) under section 143(1) of the Income Tax Act. The Assessing Officer disallowed an amount under section 36(1)(va) for not crediting the EPF contribution before the due date. The CIT(A) upheld this disallowance. Nevertheless, the Tribunal referred to a judgment of the Delhi High Court in PCIT vs. Pro Interactive Service (India) Pvt. Ltd., which emphasized that the legislative intent was to allow expenditure only when the payment was actually made. Following this precedent, the Tribunal directed the Assessing Officer to delete the disallowance, thereby allowing the appellant's grounds of appeal.

Issue 3:
Regarding the disallowance of employee contributions to provident fund and ESI, the CIT(A) disallowed the same, asserting that the payments should have been made before the due dates as per the relevant Acts. However, the Tribunal highlighted various judgments, including those of the High Court, supporting the allowance of such contributions if paid before the due date of filing the return of income. It also noted that the amendment by the Finance Act, 2021, on sections 36(1)(va) and 43B is prospective and cannot be applied retrospectively. Consequently, the Tribunal allowed the appeal of the assessee, directing the Assessing Officer to delete the disallowance.

In conclusion, the Tribunal allowed the appeal of the assessee, emphasizing the importance of following legislative intent and judicial precedents in determining the allowability of employee contributions to ESI and EPF. The judgment serves as a reminder of the significance of timely payments and adherence to legal provisions in tax matters.