2022 (5) TMI 619 - AT - Income Tax

Delay in remittance of employees contribution towards provident fund - HELD THAT - As relying on M/S MOHANLAL KHATRI VERSUS A.C.I.T., CIRCLE-2 AJMER 2021 (11) TMI 1035 - ITAT JAIPUR and 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. Scope of amendment - 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? - In our opinion, this amendment 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. Addition of Rs. 46,527/- for delay in remittance of employees' contribution towards provident fund.
2. Addition of Rs. 9,680/- for delay in remittance of employees' contribution to ESI.

Detailed Analysis of the Judgment:

1. Addition of Rs. 46,527/- for Delay in Remittance of Employees' Contribution towards Provident Fund:

The assessee appealed against the order confirming the addition of Rs. 46,527/- made by the Assessing Officer (AO) due to the delay in remittance of employees' contribution towards the provident fund. The AO made this addition under section 36(1)(va) of the Income Tax Act, 1961, which was sustained by the CIT(A). The assessee contended that the contributions were deposited before the due date of filing the return of income under section 139(1) of the Act, and therefore, no disallowance should be made. Various judgments from the Hon'ble High Court, including State Bank of Bikaner & Jaipur and Rajasthan State Seed Corporation Ltd., were cited to support this contention. The CIT(A) held that the adjustment made by the AO falls under section 143(1)(a)(ii) of the Act, as the assessee's return of income (ROI) itself showed the delay in payments, making the deduction inadmissible.

2. Addition of Rs. 9,680/- for Delay in Remittance of Employees' Contribution to ESI:

Similar to the provident fund issue, the assessee also appealed against the addition of Rs. 9,680/- made by the AO for the delay in remittance of employees' contribution to ESI. The AO's addition was based on section 36(1)(va) of the Act, and the CIT(A) sustained this addition. The assessee argued that the contributions were made before the due date of filing the return of income under section 139(1) of the Act. The CIT(A) referenced the amendment brought by the Finance Act, 2021, and the rationale explained in the memorandum of the Finance Bill, 2021, to justify the disallowance.

Tribunal's Decision:

The tribunal considered the rival contentions and reviewed the material on record. It was noted that the payments of PF & ESI contributions were made before the due date of filing the return of income under section 139(1) of the Act. The tribunal referred to the decisions of various ITAT benches and the Hon'ble High Courts, which consistently held that if the employees' contributions to PF and ESI are deposited before the due date of filing the return of income, no disallowance under section 36(1)(va) should be made. The tribunal emphasized that the amendment brought by the Finance Act, 2021, is prospective and not retrospective, applying from the assessment year 2021-22 onwards.

Conclusion:

The tribunal allowed the appeal of the assessee, deleting the additions of Rs. 46,527/- and Rs. 9,680/- made by the AO for the delay in remittance of employees' contributions towards provident fund and ESI, respectively. The tribunal held that the amended provisions of section 43B read with section 36(1)(va) of the Act are not applicable for the assessment year under consideration (2018-19) but will apply from the assessment year 2021-22 and subsequent assessment years.