2022 (7) TMI 1024 - AT - Income Tax

Delayed deposit of employee share of PF/ES - processing return of income u/s 143(1) of the 1961 Act, by invoking provision of Section 36(1)(va) read with Section 2(24)(x) - scope of amendment - HELD THAT - As observed that Hon'ble Jurisdictional High Court in the case of Sagun Foundry Private Limited 2016 (12) TMI 1479 - ALLAHABAD HIGH COURT has held that deduction is to be allowed for belated payment of employee contribution to PF/ESI which is deposited beyond the due date stipulated under the relevant statutes governing PF/ESI, but the same stood deposited before the due date for filing of return of income as is prescribed u/s 139(1) We hold that in the instant appeal for ay 2018-19, if the employee share of PF/ESI is deposited by employer to the credit of employee with the relevant fund maintained for PF/ESI before the due date of filing of return of income u/s 139(1) of the 1961 Act, then the assessee shall be entitled for deduction u/s 36(1)(va) - assessee s counsel has filed tax-audit report in which detail/ bifurcations of employee share of PF/ESI along with date of payment is mentioned but challans for deposit of PF/ESI are not filed. The said tax-audit report is placed on record in file. Thus for limited purposes, we are directing AO to verify the challans evidencing deposit of aforesaid employee share of PF/ESI and that it was deposited before the due date prescribed for filing of return of income u/s 139(1), before allowing claim of deduction u/s 36(1)(va) - assessee is directed to file before AO complete details/bifurcation of employees share of PF/ESI, which was added to income of the assessee u/s 36(1)(va) read with Section 2(24)(x) along with relevant paid challans, for verification. While passing the above order, we also note that several Division Benches of ITAT across Country have now passed appellate orders, even after considering the amendments made to Section 36(1)(va) and 43B of the 1961 Act by Finance Act, 2021, holding that if the employee share of PF/ESI is deposited by employer to the credit of employee with the relevant fund maintained for PF/ESI before the due date of filing of return of income u/s 139(1) of the 1961 Act, then the tax-payer shall be entitled for deduction u/s 36(1)(va) - Appeal of assessee allowed.

Summary

Issues Involved:

1. Allowability of deduction under Section 36(1)(va) read with Section 2(24)(x) of the Income-tax Act, 1961 for delayed deposit of employee contribution towards PF/ESI.
2. Applicability of amendments made by Finance Act, 2021 to Section 36(1)(va) and 43B of the Income-tax Act, 1961.

Detailed Analysis:

1. Allowability of Deduction under Section 36(1)(va) read with Section 2(24)(x):

The assessee filed its return of income declaring a total income of Rs. 15,48,69,400/-, which was processed by CPC, Bengaluru, and an amount of Rs. 6,24,281/- was added to the income by invoking provisions of Section 36(1)(va) read with Section 2(24)(x) on the grounds of delayed deposit of employee share of PF/ESI. The assessee contested this addition, arguing that the employee share of PF/ESI, although deposited late, was deposited before the due date for filing the return under Section 139(1). The CIT(A) dismissed the appeal, holding that the deduction is allowed only if the sum is deposited before the due date prescribed under the relevant statute governing PF/ESI, and Section 43B is not applicable.

2. Applicability of Amendments made by Finance Act, 2021:

The Finance Act, 2021 introduced amendments to Section 36(1)(va) and 43B, clarifying that the provisions of Section 43B shall not apply for determining the 'due date' under Section 36(1)(va). The assessee argued that these amendments are prospective, applicable from AY 2021-22 onwards, and should not affect the current assessment year (AY 2018-19).

Tribunal's Findings:

1. Precedents and Interpretation:
- The Tribunal referred to various judicial decisions, including those of the Hon'ble Supreme Court and High Courts, which have held that if the employee share of PF/ESI is deposited before the due date for filing the return under Section 139(1), the deduction should be allowed.
- The Tribunal noted that the Hon'ble Supreme Court in the case of Alom Extrusions Ltd. held that amendments to Section 43B by Finance Act, 2003 are retrospective, and the same principle was applied by various High Courts to employee contributions as well.

2. Amendments by Finance Act, 2021:
- The Tribunal acknowledged the amendments to Section 36(1)(va) and 43B by Finance Act, 2021, which clarified that Section 43B does not apply to employee contributions.
- However, the Tribunal emphasized that these amendments are prospective, applicable from AY 2021-22 onwards, as specified in the Memorandum to Finance Bill, 2021. Therefore, they do not affect the current assessment year under consideration.

3. Binding Precedents and Judicial Discipline:
- The Tribunal followed the binding precedent set by the Hon'ble Jurisdictional High Court in the case of Sagun Foundry Private Limited, which allowed the deduction for delayed deposit of employee contributions if deposited before the due date for filing the return under Section 139(1).
- The Tribunal also referred to several decisions of other benches of the ITAT, which consistently held that the amendments by Finance Act, 2021 are prospective.

Conclusion:

The Tribunal allowed the assessee's appeal, directing the AO to verify the challans evidencing the deposit of employee share of PF/ESI before the due date for filing the return under Section 139(1). The Tribunal held that the assessee is entitled to the deduction under Section 36(1)(va) for AY 2018-19, following the binding precedent of the Hon'ble Jurisdictional High Court and considering the prospective nature of the amendments by Finance Act, 2021.