2022 (4) TMI 1273 - AT - Income Tax

Delayed deposit of employees' contribution towards PF and ESIC - Addition u/s 36(va) r.w.s 2(24)(x) - scope of amendments made in sec 36(1) and sec 43B - HELD THAT - Admitted facts of the present case are that the payments of PF ESI contribution relating employee s contribution are before the due date of filing of return of income U/s 139(1) of the Act. We have noted that the issue under consideration is covered by the decision of the Coordinate Bench in case of M/s Mohanlal Khatri 2021 (11) TMI 1035 - ITAT JAIPUR and also case of CIT vs. AIMIL Ltd 2009 (12) TMI 38 - DELHI HIGH COURT held that the payment of employees contribution in regard to PF ESI if made before the due date of filing of return of income u/s.139(1) of the Act, the same is allowable as deduction as per the provisions of Section 2(24)(x) r.w.s. 36(1)(va) r.w.s. 43B of the Act. For amendment it has been brought in the statute book to provide certainty about the applicability of provisions of Section 43B of the Act inspite of belated payment of employee s contribution. We also noted from the memorandum explaining the provisions to Finance Act, 2021, wherein relevant Clauses to said memorandum clearly intended that the amendment shall take effect from 01.04.2021 and will accordingly apply to assessment year 2021-22 and subsequent assessment years. We are of the view that the amendment brought in the statue i.e., by Finance Act, 2021, the provisions of Section 36(1)(va) r.w.s. 43B of the Act amended by inserting explanation 2 is prospective and not retrospective. Hence, the amended provisions of Section 43B r.w.s. 36(1)(va) of the Act are not applicable for the assessment year under consideration i.e. 2018-19 but will apply from assessment year 2021-22 and subsequent assessment years. Hence, this issue raised in assessee s appeal is allowed.

Summary

Issues Involved:
1. Disallowance of ?12,84,590/- under Section 36(1)(va) read with Section 2(24)(x) of the Income Tax Act, 1961 for delayed deposit of employees' PF and ESIC contributions.
2. Applicability of amendments made by the Finance Bill 2020-21 to Section 36(1) and Section 43B.
3. Non-compliance with binding precedents set by the Supreme Court and jurisdictional High Courts.

Detailed Analysis:

1. Disallowance of ?12,84,590/- under Section 36(1)(va) read with Section 2(24)(x) of the Income Tax Act, 1961 for delayed deposit of employees' PF and ESIC contributions:
The primary issue in this appeal was the disallowance of ?12,84,590/- by the Assessing Officer (AO) for late payments towards PF and ESI under Section 36(1)(va) of the Income Tax Act, 1961. The assessee contended that these contributions were made before the due date of filing the return of income under Section 139(1) of the Act. The CIT(A) upheld this disallowance, emphasizing that the contributions were not deposited within the time specified under Section 36(1)(va).

2. Applicability of amendments made by the Finance Bill 2020-21 to Section 36(1) and Section 43B:
The assessee argued that the amendments to Section 36(1) and Section 43B introduced by the Finance Bill 2020-21 were prospective and applicable from 01.04.2021. The CIT(A) disagreed, stating that the law now clearly states that the provisions of Section 43B shall not apply for determining the "due date" under Section 36(1)(va), thus any payment made after the due date as specified under the respective PF Act shall not be allowable as a deduction.

3. Non-compliance with binding precedents set by the Supreme Court and jurisdictional High Courts:
The assessee cited various case laws, including CIT v. Alom Extrusions Ltd (2009) and CIT vs JVVNL (2014), to substantiate that contributions remitted within the due date specified under Section 139(1) of the Act should not be disallowed. The CIT(A) acknowledged these precedents but emphasized that the provisions of Section 43B, which apply to employer's contributions, do not apply to employee's contributions. The CIT(A) referred to several decisions supporting this view, including JCIT v. ITC Ltd. (ITAT, SB- Kol) 112 ITD 57 and Popular Vehicles & Services Pvt Ltd v. CIT (2018) 96 taxmann.com 13 (Kerala HC).

Tribunal's Findings:
The Tribunal considered the rival contentions and noted that the payments of PF & ESI contributions relating to employees' contributions were made before the due date of filing of return of income under Section 139(1) of the Act. It referenced the decision of the Coordinate Bench in the case of M/s Mohanlal Khatri vs. ACIT, which held that the amendments brought by the Finance Act, 2021, are prospective and applicable from assessment year 2021-22 onwards.

The Tribunal also cited various decisions of the ITAT Jaipur Bench and other High Courts, which consistently held that contributions made before the due date of filing the return of income under Section 139(1) should not be disallowed. The Tribunal concluded that the amendment brought in by the Finance Act, 2021, is prospective and not applicable for the assessment year under consideration (2017-18).

Conclusion:
The Tribunal allowed the appeal, holding that the disallowance of ?12,84,590/- was not justified as the contributions were made before the due date of filing the return of income under Section 139(1). The amendments to Section 36(1)(va) and Section 43B introduced by the Finance Act, 2021, are prospective and applicable from assessment year 2021-22 onwards. The Tribunal's decision aligns with the binding precedents set by the Supreme Court and jurisdictional High Courts.