2022 (10) TMI 601 - AT - Income Tax

Delayed employees share towards ESI and PF set up for the welfare of the employee u/s 36(1)(va) read with section 2(24)(x) - amount paid within the due dates of filing of return u/s 139 - HELD THAT - As decided in HARENDRA NATH BISWAS VERSUS DCIT, CIRCLE-29 KOLKATA 2021 (7) TMI 942 - ITAT KOLKATA we do not accept the CIT(A) s stand denying the claim of assessee since assessee delayed the employees contribution of EPF ESI fund and as per the binding decision of the Hon ble High Court in Vijayshree Ltd. 2011 (4) TMI 63 - ITAT KOLKATA u/s 36(1)(va) of the Act since assessee had deposited the employees contribution before filing of Return of Income. Therefore, the assessee succeeds and we allow the appeal of the assessee.

Summary

Issues:
Challenge to disallowance of employee benefit expenses under section 250 - Void ab initio claim - Disallowance of expenditure towards employee benefit - Failure to consider expenditure incurred and charged to Profit and Loss Account - CIT(A) error in not considering Section 43B - Delay in depositing employee and employer contributions to Provident Fund/ESI Fund.

Analysis:
The appellant challenged the order of the National Faceless Appeal Centre disallowing employee benefit expenses under section 250 of the Income Tax Act. The appellant argued that the order should be treated as void ab initio, arbitrary, and bad in law. The appellant disputed the disallowance of Rs.56,98,663, claiming it was arbitrary and bad in law. Additionally, the appellant contended that the CIT(A) erred by not considering Section 43B and failing to acknowledge the expenditure incurred and charged to the Profit and Loss Account.

The appellant's counsel highlighted a delay in depositing employee and employer contributions to the Provident Fund/ESI Fund, which was rectified before the return filing due date. Citing relevant case law, the appellant's counsel argued that the issue was covered in favor of the assessee by decisions of the Calcutta High Court and the Tribunal. The Coordinate Bench decision in a similar case supported the appellant's position, emphasizing that the Explanation-5 inserted by the Finance Act, 2021, was not applicable to the assessment year in question, AY 2017-18.

The Tribunal found merit in the appellant's arguments, following the precedent set by the Calcutta High Court and the Supreme Court regarding the retrospective application of tax provisions. The Tribunal disagreed with the CIT(A)'s reliance on Explanation-5 below Section 43B, which was not applicable to the relevant assessment year. Therefore, the Tribunal set aside the CIT(A)'s decision, allowing the appellant's appeal and ordering the deletion of the impugned addition made by the lower authorities.

In conclusion, the Tribunal ruled in favor of the appellant, highlighting the binding decisions of higher courts and the retrospective application of tax provisions. The impugned order of the CIT(A) was set aside, and the appeal of the assessee was allowed, resulting in the deletion of the disallowed amount.