2022 (7) TMI 1528 - AT - Income Tax

Disallowance of employees' contribution to ESIC and PF u/s 36(1)(va) - Appellant had deposited the employees contribution of PF and ESIC before the due date of filing of Return u/s 139(1), though the same were deposited belatedly beyond the due date specified under the respective statutes - HELD THAT - A perusal of Form 3CD, the form prescribed for filing tax audit report, would show that the tax auditor is not just required to identify and provide details of disallowance of expenditure. Form 3CD also provides for disclosures of various information/details relating to an assessee such as the nature business/profession, books of accounts maintained etc. Further, not all clauses of Form 3CD require the tax auditor to express an opinion. Some of the clauses require the tax auditor to just provide information/details. Clause 20(b) of Form 3CD falls in this category. The tax auditor is merely required to provide Details of contributions received from employees for various funds as referred to in section 36(1)(va) . This becomes clear on examining other clauses which specifically require the tax auditor to express an opinion, such as Clause 21(b) requiring disclosure of amounts inadmissible u/s 40(a), Clause 21(d) requiring disclosure of amounts inadmissible under Section 40A(3) of the Act and Clause 21(e) requiring disclosure of amounts inadmissible under Section 40A(9) of the Act. Since Clause 20(b) of Form 3CD does not require any expression of opinion on the part of tax auditor, it cannot, in our opinion, be said that disclosure made by tax auditor in the aforesaid clause constitutes a disallowance of expenditure indicated in the audit report triggering the provisions of Section 143(1)(a)(iv) of the Act. In any case the issue stands decided in favour of the Assessee by the decision of Kalpesh Synthetics Pvt. Ltd., 2022 (5) TMI 461 - ITAT MUMBAI . Ground raised by the Appellant in the present appeal are allowed and addition/disallowance made u/s 36(1)(va) pertaining to deposit of employees contribution to ESIC/PF after the due date specified in the applicable statute but before the due date of filing income tax return prescribed under Section 139(1) of the Act stands deleted. Decided in favour of assessee.

Summary

Issues involved:
Challenge to order passed by Commissioner of Income Tax (Appeals) regarding disallowance of employees' contribution to ESIC and PF under Section 36(1)(va) of the Act.

Analysis:
1. The Appellant challenged the order of the Commissioner of Income Tax (Appeals) for the Assessment Year 2018-19, which partly allowed the appeal against the intimation/order passed by the Deputy Commissioner of Income Tax under Section 143(1) of the Act. The issue revolved around the disallowance of INR 19,57,906 under Section 36(1)(va) related to employees' contribution to ESIC and PF deposited after the due date but before the due date of filing the income tax return.

2. The Appellant contended that the contributions were allowable as deductions under Section 36(1)(va) read with Section 43B of the Act, citing judgments of the Bombay High Court and the Supreme Court. The Appellant argued that the amendments introduced by the Finance Act, 2021 were applicable for Assessment Year 2021-22, and the CIT (A) erred in confirming the disallowance. The Appellant relied on a Tribunal decision in a similar case.

3. The Departmental Representative argued that Circular 22 of 2015 clarified that employee contributions are governed by Section 36(1)(va) of the Act. The representative stated that the amendments made by the Finance Act, 2021 were curative/declaratory in nature and should be applied retrospectively. The CIT (A) supported the disallowance based on this argument.

4. The Tribunal considered the submissions and material on record. It noted that the Appellant had deposited the contributions before the due date of filing the return under Section 139(1) of the Act, even though they were deposited late. The Tribunal disagreed with the CIT (A)'s reliance on the amendments introduced by the Finance Act, 2021, stating that the issue had been decided in favor of the Appellant by previous judgments. It highlighted that the adjustments/additions did not fall under the scope of Section 143(1)(a)(iv) of the Act.

5. The Tribunal emphasized that the disclosure made by the tax auditor regarding employee contributions did not constitute a disallowance triggering Section 143(1)(a)(iv) of the Act. It referenced a previous decision by the Mumbai Bench of the Tribunal to support its conclusion. Consequently, the Tribunal allowed the appeal, deleting the addition/disallowance made under Section 36(1)(va) related to the employees' contributions to ESIC/PF.

6. In conclusion, the Tribunal allowed the appeal, ruling in favor of the Appellant and deleting the disallowance of INR 19,57,906 under Section 36(1)(va) of the Act. The judgment was pronounced on 28.07.2022.