2022 (3) TMI 1071 - AT - Income Tax

Late deposit of employees' contribution to ESI PF - Scope of amendment - HELD THAT - It is not in dispute that employees' contribution to ESI and PF had been deposited well before the due date of filing of return of income u/s. 139(1). It is a consistent position across various Benches of the Tribunal including Chandigarh Benches 2021 (11) TMI 1017 - ITAT CHANDIGARH that the amendment which has been brought in by the Finance Act, 2021 shall apply w.e.f. assessment year 2021-22 and subsequent assessment years and the impugned assessment year being assessment year 2019-20, the said amendment cannot be applied in the instant case. Therefore, addition made by the CPC towards the deposit of employees' contribution towards ESI and PF paid before the due date of filing of the return of income u/s. 139(1) of the Act, is hereby directed to be deleted. Decided in favour of assessee.

Summary

Issues:
- Disallowance of employees' contribution to ESI & PF under section 36(1)(va) of the Income Tax Act, 1961.
- Applicability of the amendment introduced by the Finance Act, 2021 to Explanation-5 of Sections 36(1)(va) and 43B of the Act.
- Interpretation of the due date for depositing employees' contributions and its impact on deductions.

Analysis:
1. The appeal was filed against the order of the Learned Commissioner of Income Tax (Appeals) regarding the disallowance of employees' contribution to ESI & PF under section 36(1)(va) of the Income Tax Act for assessment year 2019-20.

2. The assessee contended that the contributions were deposited before the due date of filing the return of income u/s. 139(1) of the Act, citing relevant court decisions. The assessee argued that the Finance Act, 2021 amendment should be prospective and not retrospective, as consistently held by various Tribunal benches.

3. The Department argued that the amendment was clarificatory and retrospective, emphasizing that contributions must be paid within prescribed due dates for deductions. The Ld. CIT(A) followed a decision by the Hon'ble Gujarat High Court, leading to divergent views among High Courts.

4. The Tribunal noted that the contributions were made before the due date of filing the return of income, and the Ld. CIT(A) should have considered decisions of the jurisdictional Punjab & Haryana High Court. The Tribunal held that the Finance Act, 2021 amendment applies prospectively from assessment year 2021-22, not retroactively, thus directing the deletion of the disallowance made by the CPC.

5. Considering the legal position and precedents, the Tribunal allowed the appeal, setting aside the disallowance of employees' contribution towards ESI & PF. The decision was based on the contributions being made before the due date of filing the return of income and the prospective application of the Finance Act, 2021 amendment.

6. The Tribunal's decision emphasized adherence to jurisdictional High Court rulings, the timing of contributions in relation to the return filing due date, and the prospective nature of the Finance Act, 2021 amendment. The appeal was allowed, and the disallowance was directed to be deleted.

7. In conclusion, the Tribunal ruled in favor of the assessee, highlighting the importance of timely contributions and the application of tax law amendments in a prospective manner. The disallowance was overturned based on these considerations.