2022 (3) TMI 1347 - AT - Income Tax

Additions in respect of employees contribution towards ESI/PF - Deposits before the due date of filing of return of income u/s 139(1) - HELD THAT - As admittedly and undisputedly, the employees contribution to ESI and PF collected by the assessee from its employees have been deposited well before the due date of filing of return of income u/s 139(1) - D/R has referred to the explanation to section 36(1)(va) and section 43B by the Finance Act, 2021 and has also referred to the rationale of the amendment as explained by the Memorandum in the Finance Bill, 2021, however, we find that there are express wordings in the said memorandum which says these amendments will take effect from 1st April, 2021 and will accordingly apply to assessment year 2021-22 and subsequent assessment years . In the instant case, the impugned assessment year is assessment year 2019-20 and therefore, the said amended provisions cannot be applied in the instant case. Addition by way of adjustment while processing the return of income u/s 143(1) made by the CPC towards the deposit of the employees s contribution towards ESI and PF though paid before the due date of filing of return of income u/s 139(1) of the Act is hereby directed to be deleted.- Decided in favour of assessee.

Issues Involved:
1. Confirmation of additions in respect of employees' contribution towards ESI/PF for assessment year 2017-18.
2. Applicability of Section 36(1)(va) and Section 43B of the IT Act, 1961.
3. Impact of amendments introduced by the Finance Act, 2021.

Issue-wise Detailed Analysis:

1. Confirmation of Additions in Respect of Employees' Contribution towards ESI/PF:
The assessee filed its return of income declaring a total income of ?1,06,18,850/-. The Assessing Officer (AO) completed the assessment under Section 143(3) of the IT Act, 1961, and made various additions, including ?15,33,986/- on account of disallowance of employees' contribution towards ESI and PF. The CIT(A) confirmed the disallowance under Section 143(3) due to the assessee's failure to pay the employees' contribution within the prescribed due dates as per Section 36(1)(va) of the Act.

2. Applicability of Section 36(1)(va) and Section 43B of the IT Act, 1961:
The assessee argued that the employees' contribution was deposited before the due date of filing the return of income under Section 139(1) of the IT Act, and thus, no disallowance should be made under Section 36(1)(va). The assessee cited various judicial precedents, including decisions from the Jaipur Bench of the Tribunal and the Hon’ble Rajasthan High Court, which supported the view that contributions made before the due date of filing the return should not be disallowed.

On the other hand, the Revenue contended that the payment was not made within the prescribed due date under Section 36(1)(va), and the computerized processing center (CPC) flagged the variance between the tax audit report and the ITR, leading to the disallowance under Section 143(1)(a)(iv). The Revenue also referenced the amendment by the Finance Act, 2021, which clarified that employees' contributions must be made within the due dates specified in the respective legislation.

3. Impact of Amendments Introduced by the Finance Act, 2021:
The Tribunal noted that the amendments introduced by the Finance Act, 2021, to Section 36(1)(va) and Section 43B were stated to take effect from 1st April 2021 and apply to assessment year 2021-22 and subsequent years. Therefore, these amendments could not be applied retrospectively to the assessment year 2019-20 in question.

Judgment Analysis:
The Tribunal extensively reviewed the case and judicial precedents, including decisions from the Hon’ble Rajasthan High Court and other Tribunal Benches. It was consistently held that if the employees' contribution to ESI and PF is deposited before the due date of filing the return of income under Section 139(1), it cannot be disallowed under Section 43B read with Section 36(1)(va).

The Tribunal concluded that the CIT(A) should have followed the binding decisions of the jurisdictional Rajasthan High Court, which held that contributions made before the due date of filing the return of income should not be disallowed. Consequently, the Tribunal directed the deletion of the addition of ?15,33,986/- made by the CPC towards the delayed deposit of employees' contributions to ESI and PF.

Conclusion:
The appeal of the assessee was allowed, and the disallowance of ?15,33,986/- was directed to be deleted. The Tribunal emphasized the binding nature of jurisdictional High Court decisions and clarified that the amendments introduced by the Finance Act, 2021, could not be applied retrospectively to the assessment year in question.

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