2022 (10) TMI 392 - AT - Income Tax

Delay in payment of employees contribution of provident fund ( PF ) and ESI - scope of amendment in section 36(1)(va) as well as 43B - HELD THAT - As assessee had not deposited the employee s share of EPF and ESI etc. within due date prescribed under respective Statutes, but paid before due date for filing Return of Income under the provisions of section 139(1) we hold that the position of law as set out by various Hon'ble High Courts decisions including Ghatge Patil Transports Ltd 2014 (10) TMI 402 - BOMBAY HIGH COURT and Nipso Polyfabrics Ltd 2012 (11) TMI 592 - HIMACHAL PRADESH HIGH COURT squarely applies to the facts and circumstances of the instant cases thereby not warranting any disallowance since the amounts in question were admittedly deposited before the due date u/s 139(1) of the Act and also pertains to prior assessment years prior to A.Y. 2021-22. We direct the A.O to delete the additions made u/s 36(1)(va) of the Act from the hands of the above mentioned assessees - Decided in favour of assessee.

Issues: Disallowance of employees' contribution to Provident Fund and ESIC under section 36(1)(va) of the Income-tax Act, 1961.

Detailed Analysis:
1. The appeals were filed by the assessees challenging the disallowance under section 36(1)(va) of the Income-tax Act related to alleged delay in payment of employees' contribution to provident fund (PF) and ESI. The assessees argued that the payments were made before the due date for filing income tax returns under section 139(1) of the Act. They contended that the amendment in section 36(1)(va) and 43B, introduced by the Finance Act 2021, is prospective and not retrospective.

2. The key issue in both appeals was the disallowance of employees' contribution to PF and ESIC. The assessees relied on Pune Tribunal decisions stating that if the employees' contribution is paid before the due date for filing income tax returns, it is deductible under section 43B. The Finance Act 2021 amendment, effective from A.Y. 2021-22, was argued to be prospective. The Tribunal consolidated the cases due to identical issues and disposed of them together.

3. The Tribunal referenced various judgments, including the case of Prashant Arun Sangai Vs. ADIT and SIP Moulds Pvt. Ltd. Vs. ITO, where similar issues were decided in favor of the assessee. The Tribunal emphasized the importance of timely payment of employees' contributions before the due date for filing income tax returns under section 139(1) of the Act. The Tribunal also highlighted the impact of the Finance Act 2021 amendment, clarifying that it applies prospectively from A.Y. 2021-22.

4. The Tribunal further cited the decision of the Hon'ble Jurisdictional High Court in the case of CIT Vs. Ghatge Patil Transports Ltd., supporting the allowance of deductions for employees' contributions made before the due date for filing income tax returns. The Tribunal concluded that the disallowance of employees' contributions in the present cases was unwarranted, as the payments were made before the due date under section 139(1) of the Act for the respective assessment years.

5. Ultimately, the Tribunal allowed both appeals, directing the Assessing Officer to delete the additions made under section 36(1)(va) of the Act for the assessees in the respective cases. The Tribunal's decision was based on the consistent application of legal principles and precedents regarding the deductibility of employees' contributions to PF and ESIC when paid before the due date for filing income tax returns.

6. The Tribunal's order, pronounced on 26th September 2022, highlighted the importance of timely payment of employees' contributions and the applicability of relevant legal provisions and judgments in determining the deductibility of such contributions under the Income-tax Act, 1961.

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