2022 (5) TMI 1271 - AT - Income Tax

Delayed remittance of employees contribution to PF ESI u/s.36(1)(va) - scope of amendment brought u/s.36(1)(va) - HELD THAT - We find that an identical issue had been considered by the co-ordinate Bench of ITAT Chennai in the case of M/s.Adyar Ananda Bhavan Sweets India Ltd., 2021 (12) TMI 558 - ITAT CHENNAI and by considering the amendment to the provisions of Sec.36(1)(va) of the Act, by the Finance Act, 2021, held that amendment brought u/s.36(1)(va) of the Act, is applicable from assessment year 2020-21 onwards and thus, payments made to employees contribution to PF ESI beyond due date specified under the respective Act, but within due date for filing of return of income u/s.139(1) of the Act, is an allowable deduction u/s.36(1)(va). Thus we are of the considered view that payments made to employees contribution to PF ESI beyond due date specified under the respective Acts, but within due date for filing of return of income u/s.139(1) of the Act, is an allowable deduction u/s.36(1)(va) of the Act and thus, we direct the Assessing Officer to examine the case of the assessee with reference to date of payment and in case, the Assessing Officer finds that the assessee has remitted the employees contribution to PF ESI on or before due date for filing return of income u/s.139(1) of the Act, then the Assessing Officer is directed to delete the additions made u/s.36(1)(va) of the Act - Decided in favour of assessee.

Issues Involved:
1. Jurisdiction and due process of law in issuing intimation under Section 143(1).
2. Disallowance of employees' contribution to PF & ESI under Section 36(1)(va).
3. Timeliness of payments to PF & ESI funds.
4. Allowability of employees' contribution to PF & ESI within the due date for filing the return of income.
5. Reliance on the tax audit report for sustaining additions.
6. Debatability of the issue of allowability of employees' contribution to PF & ESI while processing the return of income under Section 143(1).

Detailed Analysis:

1. Jurisdiction and Due Process of Law:
The appellant challenged the jurisdiction and due process of law in issuing the intimation under Section 143(1) by the Assistant Commissioner of Income Tax, Centralized Processing Centre. The appellant argued that the intimation was issued without proper jurisdiction and due process, which was not appreciated by the Commissioner of Income Tax (Appeals).

2. Disallowance of Employees' Contribution to PF & ESI:
The Commissioner of Income Tax (Appeals) upheld the disallowance of employees' contribution to PF & ESI amounting to Rs. 25,16,310 under Section 36(1)(va). The appellant contended that the payments were made within the due date for filing the return of income, which should qualify as allowable expenditure.

3. Timeliness of Payments to PF & ESI Funds:
The Commissioner of Income Tax (Appeals) sustained the disallowance on the grounds that the payments to the relevant funds were not made within the due date specified under the respective statutes. The appellant argued that the payments were made before the due date for filing the return of income, which should be considered timely.

4. Allowability of Employees' Contribution to PF & ESI:
The appellant cited the decision of the ITAT in the case of M/s. Adyar Ananda Bhavan Sweets India Ltd., which held that the amendment to Section 36(1)(va) by the Finance Act, 2021, is prospective and applies from AY 2021-22 onwards. Thus, contributions made before the due date for filing the return of income should be deductible.

5. Reliance on the Tax Audit Report:
The appellant argued that the Commissioner of Income Tax (Appeals) erred in sustaining the addition based on the tax audit report. The appellant contended that the tax audit report alone should not be the basis for disallowance.

6. Debatability of the Issue:
The appellant contended that the issue of allowability of employees' contribution to PF & ESI is debatable and should not have been disallowed while processing the return of income under Section 143(1).

Judgment:
The ITAT Chennai consolidated the appeals for AY 2019-20 and AY 2018-19 due to identical facts and issues. The ITAT referred to the decision in the case of M/s. Adyar Ananda Bhavan Sweets India Ltd., which held that the amendment to Section 36(1)(va) by the Finance Act, 2021, is prospective and applies from AY 2021-22 onwards. Therefore, contributions made before the due date for filing the return of income should be deductible.

The ITAT also considered various High Court decisions, including the Hon’ble High Court of Madras in the case of M/s. Industrial Security and Intelligence India P Ltd., which supported the appellant's view. The ITAT concluded that the amendment brought by the Finance Act, 2021, is prospective and not retrospective. Hence, the disallowance under Section 36(1)(va) for the assessment years in question was not justified.

The ITAT directed the Assessing Officer to verify the dates of payment and delete the additions if the payments were made before the due date for filing the return of income under Section 139(1). Consequently, the appeals filed by the assessee for both assessment years were allowed.

Conclusion:
The ITAT Chennai allowed the appeals for AY 2019-20 and AY 2018-19, directing the deletion of additions under Section 36(1)(va) if the employees' contributions to PF & ESI were made before the due date for filing the return of income. The judgment emphasized that the amendment to Section 36(1)(va) by the Finance Act, 2021, is prospective and applies from AY 2021-22 onwards.

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