2022 (5) TMI 95 - AT - Income Tax

Disallowance being employees contribution to provident fund and employees state insurance u/s. 36(1) - whether the payment made beyond the due date prescribed under respective statutes, but before the due date prescribed u/s. 139(1)? - HELD THAT - On identical facts, the Bangalore Bench of the Tribunal in the case of M/s. Shakuntala Agarbathi Company Vs. DCIT 2021 (10) TMI 1196 - ITAT BANGALORE by following the dictum laid down by the Hon'ble jurisdictional High Court in the case of Essae Teraoka Pvt. Ltd. Vs. DCIT 2014 (3) TMI 386 - KARNATAKA HIGH COURT had held that the assessee would be entitled to deduction of employees' contribution to PF and ESI provided that the payments were made prior to the due date of filing of the return of income u/s. 139(1) - Decided in favour of assessee.

Summary

Issues:
Challenge to disallowance of employees' contribution to provident fund and employees state insurance under section 36(1)(va) of the Income-tax Act, 1961 for the assessment year 2018-19.

Analysis:
The appellant contested the disallowance made by the Ld. CIT(A) regarding the employees' contribution to PF and ESI, arguing that the payments were made before the due date prescribed under section 139(1) of the Act. The Ld. CIT(A) upheld the disallowance citing the Finance Act, 2021 amendments to sections 43B and 36(1)(va) of the Act. The appellant relied on various decisions to support their claim. The ITAT, Bangalore, considered the case law precedent set by the Hon'ble jurisdictional High Court and held in favor of the appellant, emphasizing that deductions are permissible if payments are made before the due date of filing the return of income under section 139(1) of the Act.

The ITAT referred to the case of M/s. Shakuntala Agarbathi Company Vs. DCIT, where it was established that the employees' contribution to PF and ESI is deductible if paid before the due date of filing the return of income. The ITAT also noted that the Finance Act, 2021 amendments are not clarificatory and adversely affect the assessee. The ITAT further highlighted that the amendments are prospective and do not apply to the relevant assessment year, i.e., A.Y. 2019-2020. Consequently, the ITAT directed the Assessing Officer to allow the deduction for employees' contribution to ESI as the payment was made before the due date of filing the return of income under section 139(1) of the Act.

Additionally, the ITAT addressed a legal issue raised by the appellant regarding the nature of the impugned addition and its processing under section 143(1) of the Act. Since the main issue was decided in favor of the assessee, the ITAT did not delve into this legal aspect. The respondent cited a contrary view by the Hon'ble Gujarat High Court, pending before the Supreme Court, and sought rectification if the Supreme Court rules in favor of the revenue. The ITAT granted the respondent's request, subject to statutory limitations.

In conclusion, the ITAT allowed the appeal filed by the assessee, emphasizing the deductibility of employees' contribution to ESI if paid before the due date of filing the return of income under section 139(1) of the Income-tax Act, 1961. The ITAT rejected the disallowance made by the Assessing Officer and upheld the appellant's claim for deduction.