2022 (5) TMI 824 - AT - Income Tax

Addition of amount paid towards ESIC and EPF of the employees - whether amount being ESIC and EPF, being a business expenditure incurred for the purpose of business having been paid before the filing of the return of income, the same being an allowable business expenditure - HELD THAT - As there is no dispute between the parties regarding the date of deposit of PF ESI, which clearly is beyond the prescribed date of deposit as applicable under the relevant section of the I.T. Act. Further, there is no dispute between the parties that the deposits were made before the filing of return of income for the relevant assessment year. The Hon'ble Allahabad High Court, in the case of 'Sagun Foundry (P.) Ltd. 2016 (12) TMI 1479 - ALLAHABAD HIGH COURT has dealt with a similar issue and after taking into account the judgment of the Hon'ble Supreme Court in the case of 'CIT vs. Alom Extrusion Ltd.' 2009 (11) TMI 27 - SUPREME COURT has decided the issue in favour of the assessee. Also amendment brought in by the Finance Act, 2021, has decided the issue in favour of the assessee by holding the amendment to be applicable from April 2021 only. Appeal of the assessee stands allowed.

Issues Involved:
1. Disallowance of Rs. 1,63,230/- towards ESIC and EPF contributions of employees.
2. Applicability of Section 36(1)(va) and Section 43B of the Income Tax Act.
3. Retrospective effect of the amendment brought by the Finance Act, 2021.

Detailed Analysis:

1. Disallowance of Rs. 1,63,230/- towards ESIC and EPF contributions of employees:
The assessee filed an appeal against the order of the CIT(A)/NFAC, which upheld the disallowance of Rs. 1,63,230/- as contributions towards ESIC and EPF made beyond the due date but before the filing of the return. The assessee contended that these payments should be allowed based on the interpretation of the statute and previous court decisions, including the Supreme Court's ruling in the case of 'CIT vs. Alom Extrusions Ltd.' and the Allahabad High Court's decision in 'Shagun Foundry Private Limited vs. CIT'.

2. Applicability of Section 36(1)(va) and Section 43B of the Income Tax Act:
The Assessing Officer disallowed the contributions under Section 36(1)(va), which pertains to the employees' share of contributions. The CIT(A) upheld this disallowance, leading to the appeal. The Tribunal noted that there was no dispute about the contributions being made after the due date specified in the statute but before the filing of the return. The Tribunal referenced the Allahabad High Court's decision in 'Sagun Foundry (P.) Ltd. vs. CIT', which relied on the Supreme Court's judgment in 'CIT vs. Alom Extrusions Ltd.' This judgment clarified that Section 43B, which allows deductions based on actual payment, applies to both employer and employee contributions if paid before the due date for filing the return.

3. Retrospective effect of the amendment brought by the Finance Act, 2021:
The Ld. D.R. argued that the amendment to Section 36(1)(va) by the Finance Act, 2021, which clarified that Section 43B does not apply to employees' contributions, should be considered retrospective. However, the Tribunal found that this amendment is prospective, effective from April 1, 2021, and not retrospective. The Allahabad Bench of the Tribunal, in the case of 'JCIT, Circle-2, Allahabad vs. Bharat Pumps and Compressors Ltd.', also held that the amendment applies from the assessment year 2021-22 onwards. The Tribunal emphasized that the amendment was introduced to provide certainty and was not intended to apply retrospectively.

Conclusion:
The Tribunal concluded that the issue is decided in favor of the assessee, allowing the appeal and deleting the disallowance of Rs. 1,63,230/-. The judgment referenced various case laws and clarified that the amendment by the Finance Act, 2021, does not have retrospective effect, thereby supporting the assessee's position. The appeal was allowed, and no further grounds were required for adjudication.

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