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2022 (5) TMI 100 - AT - Income TaxLate deposit of employees contribution of PF and ESI - addition under section 2(24)(x) read with section 36(1)(va) - 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 held that addition by way of adjustment while processing the return of income u/s 143(1) so made by the CPC towards the delayed deposit of the employees s contribution towards ESI and PF though paid well before the due date of filing of return of income u/s 139(1) of the Act is hereby directed to be deleted as the same cannot be disallowed under section 43B read with section 36(1)(va) - also see AIMIL LIMITED 2009 (12) TMI 38 - DELHI HIGH COURT Also in case of M/s. Industrial Security Intelligence India P Ltd., 2015 (7) TMI 1063 - MADRAS 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 Whether by the Finance Act, 2021, the provisions of Section 36(1)(va) by inserting the Explanation 2 r.w.s. 43B of the Act have been amended, whereby it is clarified that the provisions of Section 43B of the Act shall not apply and shall be deemed ought to have been applied for the purpose of determining the due date under this clause? - 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.
Issues Involved:
1. Sustaining the addition made under section 2(24)(x) read with section 36(1)(va) of the IT Act for late deposit of employees' contribution to PF and ESI. 2. Determining whether the explanation to section 36(1)(va) introduced by Finance Act, 2021 is prospective or retrospective in nature. Detailed Analysis: Issue 1: Sustaining the Addition for Late Deposit of Employees' Contribution to PF and ESI The assessee, a Private Limited Company, faced disallowance of Rs. 10,26,853/- by the AO under section 2(24)(x) read with Section 36(1)(va) of the IT Act for late deposit of employees' PF and ESI contributions. The AO made these additions during the assessment proceedings. The assessee appealed against this order, presenting detailed payment records showing that the contributions were deposited before the due date of filing the return of income under section 139(1) of the IT Act. Despite this, the CIT(A) upheld the AO's decision, citing various High Court decisions that emphasized the necessity of depositing employees' contributions within the due date specified under relevant statutes. Issue 2: Prospective or Retrospective Nature of Explanation to Section 36(1)(va) The CIT(A) held that the explanation introduced by the Finance Act, 2021 to section 36(1)(va) was prospective. The CIT(A) relied on High Court decisions which stated that belated payments of employees' contributions are not allowable as deductions under section 43B if not deposited within the statutory due dates. During the hearing, the assessee's representative argued that the CIT(A)'s decision was erroneous and cited various ITAT judgments, including those from the Jaipur Bench, which had deleted similar additions on the grounds that contributions paid before the due date of filing returns should be allowed. The ITAT noted that the issue was covered by the decision of the Coordinate Bench in M/s Mohanlal Khatri vs. ACIT, where it was held that contributions deposited before the due date of filing the return of income under section 139(1) are allowable. The ITAT also referenced decisions from other benches and High Courts, including the Hon'ble Calcutta High Court in Vijayshree Ltd., which supported the view that such contributions are deductible if paid before the return filing due date. Conclusion: The ITAT concluded that the amendment brought by the Finance Act, 2021, which clarified that section 43B does not apply to employees' contributions under section 36(1)(va), is prospective and not retrospective. Therefore, for the assessment years under consideration (2017-18 and 2019-20), the contributions made before the due date of filing the return of income should be allowed as deductions. Consequently, the ITAT allowed the appeals of the assessee, deleting the disallowances made by the AO and sustained by the CIT(A). Order: Both appeals of the assessee were allowed, and the order was pronounced in the open court on 25/04/2022.
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