2022 (10) TMI 906 - AT - Income Tax

Disallowance of employee s contribution u/s. 36(1)(va) - HELD THAT - As the assessee submitted that all the ESI amounts have been paid within the statutory time limits under the ESI Act. The counsel for the assessee stated that it was owing to a software error in filing Audit Report that the columns got interchanged, leading to the present misunderstanding. Assessee drew our attention (copies of Challaans for payment of Employees State Insurance Corporation) of the paper book to point out that all ESI contributions have been paid before the due dates as per the relevant Act. Accordingly, it was submitted that the matter may kindly be restored to the file of AO to carry out the necessary verifications. DR also did not object to the matter being restored to the file of the AO for the same. Therefore, in the interests of justice, we are restoring the matter to the file of the AO to carry out the necessary verification to ascertain if the payments have been made within due date under the ESI/relevant Act. Appeal of the assessee is allowed for statistical purposes.

Summary

Issues: Disallowance of employee's contribution under section 36(1)(va) and interpretation of recent amendments in Finance Act, 2021

Issue 1: Disallowance of employee's contribution under section 36(1)(va)

The appeal pertains to the disallowance of employee's contribution under section 36(1)(va) of the Income Tax Act, 1961. The appellant contested the disallowance, arguing that the amount was paid before the due date for filing the income tax return under section 139(1). However, the CIT(A) upheld the disallowance, emphasizing the legal distinction between employee's and employer's contributions, citing the decision of the Hon'ble Madras High Court in Unifac Management Services (India) (P.) Ltd. vs DCIT. The CIT(A) also highlighted the recent amendments in the Finance Act, 2021, clarifying that the provisions of section 43B do not apply to determine the due date for employee's contribution.

Issue 2: Interpretation of recent amendments in Finance Act, 2021

The Finance Act, 2021 introduced amendments to sections 36 and 43B of the Income Tax Act. Explanation 2 was added to section 36(1)(va), clarifying that the provisions of section 43B do not apply for determining the due date under this clause. Similarly, Explanation 5 was inserted into section 43B to specify that its provisions do not apply to sums received by the assessee from employees to which section 2(24)(x) applies. The amendments aimed to remove doubts regarding the applicability of section 43B to employee's contributions, emphasizing that such contributions made after the due date are to be added to the appellant's income.

Conclusion:

The ITAT Rajkot, comprising Shri Waseem Ahmed and Shri Siddhartha Nautiyal, considered the appellant's submissions regarding the payment of ESI contributions within statutory time limits and a software error leading to the misunderstanding. In the interest of justice, the matter was restored to the AO for verification of timely payments under the ESI Act. Consequently, the appeal of the assessee was allowed for statistical purposes, pending the AO's verification.