2022 (4) TMI 606 - AT - Income Tax

Disallowance u/s. 36(1)(va) - Employee s contribution to PF/ESI paid belated under the relevant Act, although same paid within due specified u/s.139(1) - HELD THAT - We find that the issue raised in the instant appeal regarding disallowance of employees contribution towards Provident Fund and ESI without following the provisions of section 2(24)(x) read with section 36(1)(va of the Act is squarely covered in favour of the assessee by the judgment in the case of Vijay Shree Ltd 2011 (9) TMI 30 - CALCUTTA HIGH COURT and in LUMINO INDUSTRIES LTD. 2021 (11) TMI 926 - ITAT KOLKATA and direct the AO to allow the claim of deduction in respect of employees contribution shares towards ESI, PF, by the assessee before the due date of filing of return u/s 139 (1) - Decided against revenue.

Summary

Issues:
Appeal against disallowance of employees' contribution to PF/ESI under section 36(1)(va) - Appellant's failure to deposit contribution on time - Applicability of amendment in section 36(1)(va) read with section 43B from April 1, 2021 - Retrospective or prospective application of the amendment.

Analysis:
1. The appeal was filed against the disallowance of employees' contribution to PF/ESI under section 36(1)(va) due to belated payment. The appellant contended that the disallowed amount was paid within the due specified under section 139(1) of the Income Tax Act, 1961. The Tribunal proceeded with the case as the appellant did not appear, and the Departmental Representative was heard.

2. The primary issue revolved around the disallowance of ?3,05,757 under PF/ESI for delayed payment as per section 36(1)(va) of the Act. The Tribunal noted that the appellant's appeal challenged this disallowance, which was central to the case. The appellant's e-return was processed by CPC, Bangalore, resulting in the disallowance due to delayed deposit of employees' contributions to PF/ESI. The AO upheld the disallowance, leading to the appeal before the CIT(A) and subsequently the Tribunal.

3. The Tribunal analyzed the legal position and cited a judgment of the Jurisdictional High Court, Kolkata, in the case of Vijay Shree Ltd, which supported the appellant's position. Additionally, a recent order of the Tribunal in ITA Nos. 231,365,366,369,367,368 & 371/Kol/2021 for various assessment years further favored the appellant's stance. The Tribunal referred to the Finance Bill, 2021 amendment, clarifying the applicability of section 43B for belated payment of employees' contributions. The amendment was deemed prospective from April 1, 2021, as per the legislative intent, overturning the CIT(A)'s view of retrospective application.

4. Relying on precedents and legislative intent, the Tribunal concluded that the amendment in section 36(1)(va) was prospective and not retrospective. The decision favored the appellant, aligning with the Jurisdictional High Court's view until Assessment Year 2021-22. The Tribunal set aside the CIT(A)'s order, directing the AO to allow the deduction for employees' contribution shares towards ESI and PF if paid before the due date of filing the return under section 139(1) of the Act.

5. Consequently, the disallowance made by the AO and confirmed by the CIT(A) was deleted, and the grounds raised by the appellant were allowed. The Tribunal did not adjudicate on the identical second ground raised by the appellant, as it was already discussed. Ultimately, the appeal of the assessee was allowed in their favor.

6. The judgment was pronounced on March 2, 2022, in favor of the appellant, highlighting the significance of timely payment of employees' contributions to PF/ESI and the prospective application of relevant amendments in tax laws.