2022 (6) TMI 224 - AT - Income Tax

Delayed employees contribution to Provident Fund and ESI - sum not remitted before due date prescribed u/s. 36(1)(va) but before the due date of filing of income tax returns u/s. 139(1) - HELD THAT - It is not in dispute that assessee had remitted the employees' contribution to PF ESI much before the due date of filing of return u/s. 139(1) of the Act, though the same has been remitted belatedly beyond the due date specified under the respective PF ESI Acts. We find that this issue is no longer res integra in view of the recent decision of the Co-ordinate Bench of this Tribunal in the case of Kalpesh Synthetics Pvt. Ltd 2022 (5) TMI 461 - ITAT MUMBAI We find that the amendment has been brought in the statute only from A.Y. 2021-22 and onwards which is very clear from Explanatory Memorandum of Finance Act, 2021 issued by the CBDT. Hence, we hold that the amendment brought in Section 36(1)(va) of the Act is to be construed only as prospective in operation and cannot be applicable for the year under consideration. Reliance in this regard is also placed on the decision of Adyar Ananda Bhavan Sweets India Pvt. Ltd. 2021 (12) TMI 558 - ITAT CHENNAI . We find that the law prevailing prior to A.Y. 2021-22 would rule the field and the case laws rendered by various High Courts would rule the field. Prior to the amendment, the Hon'ble Jurisdictional High Court in the case of CIT vs. Ghatge Patil Transport Ltd. 2014 (10) TMI 402 - BOMBAY HIGH COURT had held that employees contribution to PF ESI if remitted within the due date prescribed u/s. 139(1) of the Act for filing the income tax returns, would be allowed as deduction u/s. 43B of the Act. We also find that this issue has been decided in favour of the assessee after considering various decisions of Hon'ble Supreme Court, High Court and this Tribunal in the case of Forcepoint Software Consulting India P. Ltd. 2022 (6) TMI 95 - ITAT MUMBAI for A.Y. 2019-20 dated 27/04/222. In view of the aforesaid judicial precedents in favour of the assessee, the grounds raised by the assessee are allowed.

Summary

Issues Involved:
1. Whether the employees' contribution to Provident Fund (PF) and Employees' State Insurance (ESI) remitted after the due date prescribed under the respective Acts but before the due date of filing income tax returns under Section 139(1) of the Income Tax Act, 1961, can be allowed as a deduction.
2. The applicability of adjustments under Section 143(1)(a) of the Income Tax Act, 1961, by the Central Processing Centre (CPC).
3. The retrospective applicability of amendments to Section 36(1)(va) and Section 43B introduced by the Finance Act, 2021.

Issue-wise Detailed Analysis:

1. Deductibility of Employees' Contribution to PF and ESI:
The primary issue was whether the employees' contribution to PF and ESI, which were remitted after the due date under the respective Acts but before the due date for filing income tax returns under Section 139(1), could be allowed as a deduction. The Tribunal noted that this issue was no longer res integra in light of the decision in the case of Kalpesh Synthetics Pvt. Ltd. vs. DCIT, CPC, Bangalore, which allowed such deductions. The Tribunal observed that the Hon'ble jurisdictional High Court had permitted such deductions, emphasizing that payments made before the due date of filing returns under Section 139(1) are deductible in the computation of business income, even if made beyond the due date under the relevant statute.

2. Adjustments under Section 143(1)(a):
The Tribunal discussed the scope of adjustments permissible under Section 143(1)(a), noting that it includes disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return. The Tribunal emphasized that the process of making adjustments under Section 143(1) is an interactive and cerebral process, requiring the Assessing Officer CPC to dispose of objections raised by the assessee judiciously and with specific reasons. The Tribunal criticized the CPC's standard template response for not providing adequate reasons for rejecting the assessee's objections, rendering the adjustment process quasi-judicial and necessitating a speaking order.

3. Retrospective Applicability of Amendments:
The Tribunal held that the amendments to Section 36(1)(va) and Section 43B introduced by the Finance Act, 2021, are prospective and applicable from Assessment Year (A.Y.) 2021-22 onwards. The Tribunal relied on the Explanatory Memorandum of the Finance Act, 2021, and judicial precedents, including the decision of the Chennai Tribunal in Adyar Ananda Bhavan Sweets India Pvt. Ltd. vs. ACIT, which clarified that these amendments do not apply retrospectively. The Tribunal further referenced the Hon'ble Bombay High Court's decision in CIT vs. Ghatge Patil Transport Ltd., which allowed deductions for employees' contributions to PF and ESI if remitted before the due date for filing income tax returns under Section 139(1).

Conclusion:
The Tribunal concluded that the impugned adjustments in the processing of returns under Section 143(1) were vitiated in law and deleted the same. The Tribunal emphasized that the law prevailing prior to A.Y. 2021-22 would rule the field, and judicial precedents allowing such deductions would continue to apply. The appeals of the assessee were allowed, and the order was pronounced on 19/05/2022 by proper mentioning in the notice board.