2022 (10) TMI 293 - AT - Income Tax

Disallowance u/s.36(1)(va) - late deposit of the Employees share of EPF and ESI - Scope of amendment - HELD THAT - As Finance Act, 2021 has inserted Explanation 2 below section 36(1)(va) providing that the provisions of section 43B shall not apply for the purpose of determining the due date under this clause w.e.f. 01.04.2021. The effect of this amendment is that if the amount of employees contribution towards EPF, ESI, etc is delayed by an employer beyond the due date under the respective Acts, the disallowance will be called for notwithstanding the fact that it was deposited before the due date u/s 139 of the Act. Memorandum explaining the provisions of the Finance Bill, 2021, provides that this amendment will take effect from 1st April, 2021 and will, accordingly apply in relation to assessment year 2021-2022 and subsequent assessment years. Since the assessment year under consideration is 2019-20, which is anterior to the amendment carried out with effect from A.Y. 2021-22, we hold that the position of law as settled by in CIT vs. Nipso Polyfabriks Ltd. ( 2012 (11) TMI 592 - HIMACHAL PRADESH HIGH COURT squarely applies to the facts and circumstances of the instant case, thereby not warranting any disallowance since the amount in question was admittedly deposited before due date u/s 139(1) of the Act. The addition is therefore, directed to be deleted. - Decided in favour of assessee.

Summary

Issues:
Confirmation of disallowance of Rs.19,38,839 under section 36(1)(va) of the Act for late deposit of EPF and ESI employees' share.

Analysis:
The appeal was against the order by the National Faceless Appeal Centre regarding the assessment year 2019-20, focusing on the disallowance made by the Assessing Officer under section 36(1)(va) of the Act. The disallowance was due to the late deposit of Rs.19,38,839 concerning the employees' share of EPF and ESI. The Assessing Officer's decision was upheld by the ld. CIT(A), leading to the appeal at the ITAT Pune.

The Tribunal noted the absence of the assessee during the hearing and proceeded ex parte but considered the merits of the case. It was established that the employees' share of EPF and ESI was deducted and paid after the due date but before the return filing deadline under section 139(1) of the Act for the relevant year. This fact was acknowledged in the assessment order, and the issue of disallowance in such scenarios had been addressed in previous judgments allowing deductions under section 36(1)(va) for contributions deposited post the due date but before the return filing deadline.

The Tribunal highlighted the relevance of a judgment by the Himachal Pradesh High Court, emphasizing that there is no distinction between employees' and employer's contributions, both being eligible for deduction if deposited before the due date. Additionally, the Finance Act, 2021, introduced an amendment exempting the provisions of section 43B for determining the due date under section 36(1)(va) from April 1, 2021. As the assessment year in question was 2019-20, preceding the amendment, the Tribunal concluded that the law's settled position, as per various High Court decisions, applied to the case. Hence, the disallowance was deemed unnecessary as the amount was deposited before the due date under section 139(1) of the Act, leading to the deletion of the addition.

Ultimately, the Tribunal allowed the appeal, directing the deletion of the addition, based on the established legal principles and precedents. The judgment was pronounced in the Open Court on September 22, 2022.