2022 (8) TMI 517 - AT - Income Tax

Belated payment of Employee s Provident Fund (EPD) and Employee s State Insurance Scheme (ESI) - Scope of amendment - HELD THAT - A s amendment brought out by Finance Act 2021 is concerned, notes on clauses to the Finance Bill 2021 clearly states that the amendment will take effect from 1st April 2021 and will apply in relation to the assessment year 2021-22 and subsequent assessment year we are of the view that the amendment brought out by Finance Act 2021 does not apply to the assessment year under consideration. Before us, Revenue has not placed any material on record to demonstrate that the aforesaid order cited hereinabove has been overruled/stayed/set aside by higher judicial forum. In view of the aforesaid facts, we are of the view that the AO was not justified in denying the deduction claimed by the assessee on account of late deposit of PF/ESI/EPF, albeit before filing the return of income. Admittedly in the matter, the Revenue had not contended that the assessee has deposited the contribution after the filing of the return of income. In view of the above, respectfully following the decision of the Hon ble High Court cited hereinabove, we allow the appeal filed by the assessee.

Issues:
1. Addition of late deposit of employees' share of ESI & PF by CPC.
2. Interpretation of provisions of sec 2 (24)(x) read with section 43B.
3. Applicability of the amendment brought out by Finance Act 2021.

Issue 1: Addition of late deposit of employees' share of ESI & PF by CPC

The assessee, a firm engaged in the business of labor contracting, filed an appeal against the order passed by the Commissioner of Income Tax (Appeals) relating to Assessment Year 2019-20. The dispute centered around the addition of Rs. 3,07,637 by CPC pertaining to the late deposit of employees' share of ESI & PF. The assessee contended that the amounts were paid before the due date of filing the return and should not have been added. The Learned AR argued that all contributions from employees had been deposited before the filing of the income tax return, citing relevant case law to support the claim. The DR supported the lower authorities' decision and referred to a case to strengthen their argument. The Tribunal noted that the issue had been settled in favor of the assessee by various judicial pronouncements. Citing a judgment by the Hon'ble Jurisdictional High Court of Delhi, the Tribunal held that the legislative intent was not to treat belated payments of EPF and ESI as deemed income of the employer under section 2(23)(x) of the Act. The Tribunal, therefore, allowed the appeal filed by the assessee, emphasizing that the AO was not justified in denying the deduction claimed due to the late deposit of PF/ESI/EPF, which was made before filing the return of income.

Issue 2: Interpretation of provisions of sec 2 (24)(x) read with section 43B

The assessee argued that the addition made by CPC was contrary to provisions of law and unjustified as the payments were made before the due date of filing the return. The Learned AR contended that the delay in depositing PF/ESIC contributions did not warrant a disallowance since all contributions from employees were deposited before filing the return. The DR supported the lower authorities' decision and referred to a case to strengthen their argument. The Tribunal, relying on judicial pronouncements, including a judgment by the Hon'ble Jurisdictional High Court of Delhi, held that the legislative intent was not to treat belated payments of EPF and ESI as deemed income of the employer under section 2(23)(x) of the Act. The Tribunal allowed the appeal filed by the assessee, emphasizing that the AO was not justified in denying the deduction claimed due to the late deposit of PF/ESI/EPF, which was made before filing the return of income.

Issue 3: Applicability of the amendment brought out by Finance Act 2021

The DR argued that the amendment brought out by Finance Act 2021 would be applicable to the case, clarifying that the provisions of Section 43B of the Act shall not apply to sums received by the assessee from employees. However, the Tribunal noted that the amendment would take effect from 1st April 2021 and apply to subsequent assessment years, indicating that it did not apply to the assessment year under consideration. The Tribunal highlighted that the Revenue had not provided any material to show that the previous order had been overruled, stayed, or set aside. Consequently, the Tribunal allowed the appeal filed by the assessee, as the AO was not justified in denying the deduction claimed on account of the late deposit of PF/ESI/EPF, which was made before filing the return of income.

This detailed analysis of the judgment addresses the issues involved, providing a comprehensive understanding of the legal reasoning and decisions made by the Tribunal.

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