2022 (3) TMI 1013 - AT - Income Tax

Late payments towards EPF and ESI under section 36(1)(va) - amount deposited after the due date but before the due date of filing of return of income - AO made the additions of the impugned amounts for the reasons that the assessee did not deposit the amounts of employees contribution as per the provisions of section 36(1)(va) - HELD THAT - As decided in M/S MOHANLAL KHATRI VERSUS A.C.I.T., CIRCLE-2 AJMER 2021 (11) TMI 1035 - ITAT JAIPUR we do not accept the Ld. CIT(A) s stand denying the claim of assessee since assessee delayed the employees contribtion of EPF ESI fund and as per the binding decision of the Hon ble High Court in Vijayshree Ltd. 2011 (4) TMI 63 - ITAT KOLKATA u/s 36(1)(va) of the Act since assessee had deposited the employees contribution before filing of Return of Income. Therefore, the assessee succeeds. Thus the impugned addition on account of deposits of employees contribution of ESI PF prior to filing of the return of income u/s 139(1) of the Act, in both the years under consideration prior to the amendment made by the Finance Act, 2021 w.e.f. 1.4.2021 vide Explanation 5, are deleted. - Decided in favour of assessee.

Issues Involved:
1. Sustaining the addition made by CPC Bangalore under Section 2(24)(x) read with Section 36(1)(va) of the Income Tax Act on account of late deposit of employees' contribution to PF and ESI.
2. Interpretation of Explanation 2 to Section 36(1)(va) introduced by Finance Act, 2021, and its prospective application.
3. Jurisdictional High Court's binding decision on the matter.

Detailed Analysis:

1. Sustaining the Addition Made by CPC Bangalore Under Section 2(24)(x) Read with Section 36(1)(va) of the Income Tax Act on Account of Late Deposit of Employees' Contribution to PF and ESI:
The assessee firm filed its Income Tax Return for AY 2018-19, declaring a total income of ?87,82,714/-. The Assessing Officer (AO) made additions of ?3,97,113/- and ?1,73,243/- (totaling ?5,70,356) under Section 2(24)(x) read with Section 36(1)(va) on account of late deposit of PF and ESI contributions. The CIT(A) confirmed the disallowance, emphasizing that employee contributions to welfare funds must be deposited by the due date specified in the respective statutes. The CPC Bangalore's adjustment was based on the ground that these payments were not made before the due date as per Section 36(1)(va).

2. Interpretation of Explanation 2 to Section 36(1)(va) Introduced by Finance Act, 2021, and Its Prospective Application:
The CIT(A) held that Explanation 2 to Section 36(1)(va) introduced by the Finance Act, 2021, is prospective in nature. The explanation clarifies that the provisions of Section 43B shall not apply to employee contributions and is deemed never to have been applied. The CIT(A) relied on several High Court decisions, including the Hon'ble Madras High Court in M/s Unifac Management Services (India) Pvt. Ltd. vs. DCIT, and the Hon'ble Kerala High Court in CIT vs. Merchem Ltd., which upheld the distinction between employer and employee contributions towards welfare funds.

3. Jurisdictional High Court's Binding Decision on the Matter:
The assessee argued that the jurisdictional High Court of Rajasthan has consistently held that if employees' contributions to PF & ESI are deposited before the due date of filing the return, no disallowance can be made under Section 36(1)(va). The ITAT Jaipur Bench, in the appellant’s own case for AY 2019-20, followed the binding judgments of the Rajasthan High Court, including CIT Jaipur vs. JVVNL, and deleted the addition made by CPC for delay in deposit of employee contributions to PF & ESI beyond the due date prescribed under respective laws but deposited before the due date of filing the return.

Judgment:
The ITAT Jaipur Bench considered the rival contentions and perused the orders of the authorities and the material available on record. The Bench noted that the payments of PF & ESI contributions relating to employees were made before the due date of filing of the return of income under Section 139(1). The Bench held that the issue is covered by the decision of the Coordinate Bench in M/s Mohanlal Khatri vs. ACIT, where it was concluded that the amendment by the Finance Act, 2021, is prospective and applicable only from AY 2021-22. Therefore, the disallowances made by the AO and sustained by the CIT(A) were deleted.

Conclusion:
The appeals of the assessees were allowed, and the additions made on account of late deposit of employees' contributions to PF & ESI were deleted, as the contributions were deposited before the due date of filing the return of income under Section 139(1). The ITAT Jaipur Bench followed the binding decisions of the jurisdictional High Court of Rajasthan and concluded that the amendments brought by the Finance Act, 2021, are prospective and not applicable to the assessment year under consideration.

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