2022 (3) TMI 1181 - AT - Income Tax

Late deposit of employees' contribution to ESI PF - Scope of amendment - HELD THAT - CIT(A) has referred to the amendment brought in by the Finance Act, 2021 wherein an explanation has been introduced to Sections 36(1)(va) and u/s. 43B of the Income Tax Act. 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 2018-19, the said amendment cannot be applied in the instant case. Considering the entirety of facts and circumstances of the case and following the decisions of various High Courts as well as Coordinate Benches of the Tribunal referred above, the addition made by way of adjustment while processing the return of income u/s. 143(1) so 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). Appeal of the assessee is allowed.

Summary

Issues:
Disallowance of employees' contribution to ESI & PF under section 36(1)(va) of the Income Tax Act, 1961 for assessment year 2018-19.

Analysis:
The appeal was filed against the order of the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre confirming the disallowance of employees' contribution towards ESI & PF. The assessee argued that the contributions were made before the due date of filing the return of income under section 139(1) of the Act. They relied on various court decisions to support their claim. The Ld. CIT(A) upheld the disallowance based on the Finance Act, 2021 amendment introducing Explanation-5 to section 36(1)(va). The assessee contended that this amendment should be prospective and not retrospective, citing consistent tribunal decisions. The tribunal noted divergent views of different High Courts but emphasized following the jurisdictional Punjab & Haryana High Court's decisions. It held that the Finance Act, 2021 amendment applies from assessment year 2021-22 onwards and cannot be applied to the assessment year 2018-19. Consequently, the disallowance of employees' contributions amounting to ?89,57,978 made by the CPC was directed to be deleted, and the appeal of the assessee was allowed.