2022 (4) TMI 1617 - AT - Income Tax

Delayed Contribution of Employee's towards Provident Fund and ESI - deposits made by the appellant after the due date of the respective act but before the due date of filling of return as per section 139(1) - HELD THAT - The issues raised in this appeal, are covered by the decision of coordinate bench in the case of Kalpesh Synthetics Pvt Ltd., 2022 (5) TMI 461 - ITAT MUMBAI as held that no such disallowance of the delayed deposit of the employee s share of contribution towards labour welfare fund could have been made in the hands of the assessee company while processing its return of income u/s. 143(1)(a) - as long as the payments towards provident fund dues are made before the due date of filing of the income tax return under section 139(1), even beyond the permissible time limit under the relevant statute under which payment is made, the payments so made are deductible in the computation of business income. The disallowance is thus unwarranted. Decided in favour of assessee.

Summary

Issues Involved:
1. Contribution of Employee's towards Provident Fund (PF) and Employees' State Insurance (ESI) under Section 36(1)(va) and Section 43B of the Income Tax Act, 1961.
2. Permissibility of adjustments under Section 143(1) based on the tax audit report.
3. Retrospective or prospective application of the amendments to Section 36(1)(va) and Section 43B by the Finance Act, 2021.

Detailed Analysis:

1. Contribution of Employee's towards Provident Fund (PF) and Employees' State Insurance (ESI) under Section 36(1)(va) and Section 43B of the Income Tax Act, 1961:
The appellant had deposited the employee's PF and ESI contributions after the due date specified under the respective acts but before the due date for filing the income tax return under Section 139(1). The CPC disallowed these payments, and the CIT(A) upheld this disallowance, citing recent amendments to Section 36 in the Finance Act, 2021. The CIT(A) reasoned that the employer must deposit the contributions on or before the due date under the PF and ESI acts to be eligible for deduction.

2. Permissibility of adjustments under Section 143(1) based on the tax audit report:
The tribunal noted that the adjustments under Section 143(1) should be based on material facts apparent from the return itself. The tribunal emphasized that the tax audit report, being an opinion of an independent professional, cannot bind the assessee. The tribunal highlighted that the tax auditor's observations should not automatically lead to disallowances under Section 143(1) if they contradict binding judicial precedents. The tribunal criticized the CPC for not providing specific reasons for rejecting the assessee's objections and for using standard template responses, which do not reflect a proper application of mind.

3. Retrospective or prospective application of the amendments to Section 36(1)(va) and Section 43B by the Finance Act, 2021:
The tribunal discussed the prospective nature of the amendments introduced by the Finance Act, 2021, to Sections 36(1)(va) and 43B. The tribunal noted that these amendments clarify that the provisions of Section 43B do not apply to employee contributions, which must be deposited by the due date under the respective statutes. The tribunal observed that these amendments should not apply to periods before 1st April 2021, and therefore, disallowances for earlier periods should not be made based on these amendments.

Conclusion:
The tribunal allowed the appeal, holding that the impugned adjustment in the processing of the return under Section 143(1) was vitiated in law. The tribunal emphasized that the CPC must consider the assessee's objections judiciously and provide specific reasons for any disallowances. The tribunal also reiterated that the amendments to Sections 36(1)(va) and 43B by the Finance Act, 2021, are prospective and should not affect assessments for periods before 1st April 2021. The tribunal followed the decision of the coordinate bench in the case of Kalpesh Synthetics Pvt Ltd., upholding the plea of the assessee.