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2022 (4) TMI 551 - AT - Income TaxDelayed payment of employees contribution towards provident fund contribution and ESI contribution - HELD THAT - Tribunal has consistently viewed that the employees contribution to PF and ESI is allowable deduction if the same is paid before the due date of filing the return of income. In the case of EASTERN POWER DISTRIBUTION COMPANY OF A.P. LTD 2016 (9) TMI 1040 - ITAT VISAKHAPATNAM considering the decision of Essae Teraoka (P) Ltd. 2014 (3) TMI 386 - KARNATAKA HIGH COURT and the decision of coordinate bench in the case of Tetra Soft (India) Pvt. Ltd. 2015 (10) TMI 1601 - ITAT HYDERABAD and also taking support from the decision in the case of CIT Vs. M/s Vegetables Products Ltd 1973 (1) TMI 1 - SUPREME COURT decided the issue in favour of the assessee.
Issues Involved:
1. Disallowance of ?4,20,420/- under section 36(1)(va) of the Income Tax Act, 1961 for delayed payment of employees' contribution towards provident fund and ESI. 2. Interpretation of amendments to sections 36(1)(va) and 43B by the Finance Act, 2021. 3. Applicability of judicial precedents regarding the timing of payment for deductions under section 43B. Issue-Wise Detailed Analysis: 1. Disallowance under Section 36(1)(va): The assessee filed a return declaring an income of ?8,34,960/-. The Centralized Processing Centre (CPC) added ?4,20,420/- to the income under section 36(1)(va) due to delayed payment of employees' contributions to provident fund (?3,22,269/-) and ESI (?98,158/-), computing the total income at ?12,55,380/-. The assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], arguing that the contributions were paid before the end of the financial year and before the due date for filing the return. However, the CIT(A) dismissed the appeal, relying on the amendments made by the Finance Act, 2021. 2. Interpretation of Amendments to Sections 36(1)(va) and 43B: The assessee contended that the explanations inserted to sections 36(1)(va) and 43B by the Finance Act, 2021, should not be considered retrospective. The CIT(A) upheld the disallowance based on these amendments. The Tribunal noted that the return was processed under section 143(1) without a scrutiny assessment under section 143(3). It emphasized that debatable issues are not permitted to be adjusted under section 143(1), referencing the case of Andhra Trade Development Corporation, where it was held that adjustments requiring verification with relevant documents are beyond the scope of section 143(1). 3. Applicability of Judicial Precedents: The Tribunal referenced the Hon’ble Madras High Court's decision in Redington (India) Ltd., which allowed deductions for employees' contributions to PF and ESI if paid before the due date for filing the return. It also cited its own decision in Andhra Trade Development Corporation, reinforcing that debatable issues should not be adjusted under section 143(1). Further, the Tribunal consistently held that employees' contributions to PF and ESI are allowable deductions if paid before the due date for filing the return, as supported by decisions in APEPDCL, Essae Teraoka (P) Ltd., and others. The Tribunal concluded that the addition made by the CPC under section 143(1) was unsustainable and deleted it. Conclusion: The Tribunal allowed the appeal, holding that the disallowance made by the CPC under section 143(1) was unsustainable. It emphasized that employees' contributions to PF and ESI are deductible if paid before the due date for filing the return, following consistent judicial precedents. The appeal was allowed on both procedural grounds (improper adjustment under section 143(1)) and merits (timely payment before the return filing due date). Order Pronounced: The appeal of the assessee was allowed, and the order was pronounced in open court on 08th April, 2022.
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