2022 (4) TMI 662 - AT - Income Tax

Delayed employees contribution to PF ESI - AO invoked the provisions of Section 36(1)(va) of the Act and disallowed the amount - CIT-A held that the amendment brought in by the Finance Act, 2021 inserting Explanation to Section 36(1)(va) of the Act stated is retrospective in nature and therefore provision of Section 43B of the Act will not apply on the employees contribution towards PF ESI and the same deserves to be disallowed - HELD THAT - As assessee has remitted the PF ESI dues before the date of filing of return of income u/s. 139(1) of the Act and the same was deposited , which fact is discernable from a perusal of the Tax Audit Report (TAR) and on a perusal of the same it is seen that the assessee has deposited employees contribution before the due date of filing of the return. See LUMINO INDUSTRIES LTD. 2021 (11) TMI 926 - ITAT KOLKATA Therefore allow the appeal of the assessee and direct the A.O. to delete the addition and hold that the Amendment brought in Finance Act 2021 w.e.f. 01.04.2021 by inserting an Explanation to section 36(1)(va) and section 43B of the Act is prospective in nature and would apply from AY 2021-22 onwards and, therefore, the amendment is not applicable to this assessment years (Assessment Year 2019-20) under consideration. - Appeal of assessee allowed.

Issues Involved:
1. Disallowance of employees' contribution to PF & ESI.
2. Charging of interest under Sections 234B and 234C.
3. Disallowance of expenditure on TDS late payment interest under Section 37.
4. Non-allowance of claim under Section 43B.
5. Allowability of fee paid under Section 234E as a business expenditure.

Issue-wise Detailed Analysis:

1. Disallowance of Employees' Contribution to PF & ESI:
The primary issue for both AY 2017-18 and AY 2018-19 was the disallowance under Section 36(1)(va) for delayed payment of employees' contributions to PF & ESI. The amounts involved were ?7,71,710/- for AY 2017-18 and ?11,64,817/- for AY 2018-19. The Assessing Officer (AO) disallowed these amounts based on the auditor's observation that the payments were not made within the due date of the immediate next month, although they were made before the due date of filing returns under Section 139(1). The Commissioner of Income-tax (Appeals) [CIT(A)] upheld the AO's decision, citing the Finance Act, 2021's amendment as retrospective. However, the Tribunal referenced the decision in Lumino Industries Ltd. vs. ACIT, which clarified that the amendment is prospective, effective from 1st April 2021, and thus not applicable to the assessment years in question. Consequently, the Tribunal reversed the CIT(A)'s decision and allowed the deduction, deleting the disallowances for both years.

2. Charging of Interest under Sections 234B and 234C:
For AY 2017-18, the assessee contested the charging of interest under Sections 234B and 234C, amounting to ?4,54,728/- and ?98,243/- respectively. For AY 2018-19, the contested amounts were ?20,246/- under Section 234A, ?2,20,480/- under Section 234B, and ?1,02,244/- under Section 234C. The Tribunal did not provide specific adjudication on these grounds, indicating they were either general or consequential in nature.

3. Disallowance of Expenditure on TDS Late Payment Interest under Section 37:
For AY 2018-19, the assessee challenged the disallowance of ?2,58,270/- as TDS late payment interest under Section 37. The Tribunal referenced the decision in Narayani Ispat Pvt. Ltd., where it was held that interest for delayed payment of service tax and TDS is compensatory and allowable under Section 37(1). The Tribunal allowed the deduction, setting aside the CIT(A)'s decision.

4. Non-allowance of Claim under Section 43B:
For AY 2018-19, the assessee raised a ground for not allowing a deduction under Section 43B amounting to ?8,43,343/-. However, the assessee's counsel did not press this ground, and it was dismissed as not pressed.

5. Allowability of Fee Paid under Section 234E as a Business Expenditure:
For AY 2018-19, the assessee argued that the fee paid under Section 234E for late filing of quarterly returns should be allowed as a business expenditure under Section 37(1). The Tribunal referred to the decision in Narayani Ispat Pvt. Ltd., which held that such fees are compensatory and allowable as business expenses. The Tribunal allowed the deduction, reversing the CIT(A)'s decision.

Conclusion:
The Tribunal allowed the appeal for AY 2017-18 entirely and partly allowed the appeal for AY 2018-19, providing relief to the assessee on the main issues of disallowance of employees' contribution to PF & ESI and the allowability of fees under Section 234E as business expenditure.

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