2022 (6) TMI 890 - AT - Income Tax

Late deposit of PF/ESI - deposit of employees contributions qua PF ESI after the due date as prescribed in the relevant Acts, however, before the due date of filing of return of income u/s.139(1) - Addition made following the amendment in 43B regarding Employees Contribution of Provident Fund, ESI or any other welfare fund under Finance Act 2021 - HELD THAT - Admittedly there is plethora of judgments in favour of the Assessee s contention and of the Revenue. The controversy with regard to divergent views of different High Courts, has been settled by the Hon'ble Apex Court in the case of CIT Vs. M/s. Vegetables Products Ltd. 1973 (1) TMI 1 - SUPREME COURT by laying down the dictum if two reasonable constructions of a taxing provision are possible that construction which favours the Assessee must be adopted. The issue under controversy travelled upto the Hon ble Apex Court in the cases of Rajasthan State Beverages Ltd 2017 (7) TMI 1087 - SC ORDER , CIT Vs. Alom Extrusion Ltd 2009 (11) TMI 27 - SUPREME COURT , CIT Vs. Vinay Cement Ltd 2007 (3) TMI 346 - SC ORDER clearly held the amount claimed on payment of PF and ESI if deposited on or before due date of filing of returns then the same cannot be disallowed u/s 43B or u/s 36(1)(va) of the Act. Coming to the amendments brought in by the Finance Act 2021 by inserting Explanation 2 in Section 36(1)(va) and 5 in section 43B ITAT including Hyderabad Bench in the case of Value Momentum Software Services Pvt. Ltd. 2021 (5) TMI 989 - ITAT HYDERABAD have taken into consideration the identical issue qua applicability of the amendment to Sections 36(1)(va) and Section 43B of the Act, by inserting Explanations by the Finance Act, 2021 and clearly held that the amendment shall be applicable from 1st April, 2021 onwards . It is also relevant to note that the CBDT has also issued Memorandum of Explanation qua applicability of the amended provisions of Sections 36(1)(va) 43B of the Act w.e.f. 1st April, 2021 and Assessment Year 2021-22 onwards, hence there is no doubt qua applicability of the amended provisions referred above, prospectively. The second aspect as considered by the ld. CIT(A) qua applicability of the amended provisions of Sections 36(1)(va) and 43B of the Act to the cases in hand, is also un-sustainable. - Decided in favour of assessee.

Summary

Issues:
1. Addition of Rs. 2112070 under section 43(1) of the Income Tax Act for late deposit of PF/ESI.
2. Disallowance of payment of Employees' contribution of ESI/PF by CPC for late payment.

Analysis:

Issue 1: Addition under section 43(1) for late deposit of PF/ESI
The appeal challenged the addition of Rs. 2112070 made by the CPC under section 43(1) of the Income Tax Act for late deposit of PF/ESI following the amendment in 43B. The appellant argued that the amendment was not retrospective and thus the addition was void ab initio. The Commissioner of Income Tax (Appeals) upheld the addition, leading to the appeal before the ITAT. The ITAT noted the controversy regarding the applicability of section 43B to employees' contributions towards PF & ESI. Citing various judgments, including the case of CIT Vs. M/s. Vegetables Products Ltd., the ITAT emphasized adopting a construction favoring the assessee in taxing provisions. The ITAT referred to judgments like Rajasthan State Beverages Ltd and CIT Vs. Alom Extrusion Ltd, where the Supreme Court held that if the PF and ESI contributions were deposited before the due date of filing returns, they cannot be disallowed under section 43B or 36(1)(va) of the Act. The ITAT also highlighted the Delhi High Court's rulings in cases like CIT vs. AIMIL Ltd. and Pr.CIT Vs. M/s Pro Interactive Services (India) Pvt. Ltd., which supported the assessee's position.

Issue 2: Disallowance of Employees' contribution of ESI/PF for late payment
The second issue revolved around the disallowance of employees' contribution of ESI/PF by CPC due to late payment by the assessee. The ITAT noted that the CIT(A) upheld the disallowance based on the non-applicability of section 43B to employees' share and the amended provisions of Sections 36(1)(va) and 43B introduced by the Finance Act 2021. The ITAT referred to the amendments brought in by the Finance Act 2021, inserting Explanation 2 in Section 36(1)(va) and Explanation 5 in section 43B, clarifying that these provisions shall not apply for determining the "due date." The ITAT highlighted that various ITAT benches, including the Hyderabad Bench, had ruled on the applicability of these amendments, stating they would be effective from April 1, 2021, onwards. Considering this, the ITAT found the disallowances made by the Assessing Officer and confirmed by the CIT(A) were unsustainable and hence deleted the same, allowing the appeal of the assessee.

In conclusion, the ITAT ruled in favor of the assessee, deleting the disallowances made under section 43(1) and confirming that the employees' contributions of ESI/PF should not be disallowed for late payment if deposited before the due date of filing returns.