2022 (7) TMI 1564 - AT - Income Tax

Disallowance u/s 36(1)(va) - late deposit of Employees share of EPF and ESI - HELD THAT - We find that similar issue came up for consideration before co-ordinate Bench of Pune Tribunal in 2022 (6) TMI 1520 - ITAT PUNE wherein an admitted position that the assessee did deduct employees share of EPF and ESI and paid the same after the due date under the respective legislations but before the time stipulated for filing return u/s 139(1) of the Act. In our opinion, this issue is no more res integra in view of several judgments allowing deduction u/s 36(1)(va) of employees share of contribution deposited after due date under the respective Acts but before the date prescribed u/s 139. As Nipso Polyfabriks Ltd. 2012 (11) TMI 592 - HIMACHAL PRADESH HIGH COURT has held that there exists no difference between employees or employer s contribution and both are to be allowed as deduction if deposited before the due date. Decided in favour of assessee.

1. ISSUES PRESENTED and CONSIDERED

The core legal question addressed in this judgment is whether the disallowance made by the Assessing Officer under Section 36(1)(va) of the Income-tax Act, 1961, for the late deposit of employees' share of EPF and ESI contributions, is justified when such deposits are made after the due date under the respective Acts but before the due date for filing the return under Section 139(1) of the Act.

2. ISSUE-WISE DETAILED ANALYSIS

Relevant Legal Framework and Precedents:

The legal framework revolves around Section 36(1)(va) of the Income-tax Act, which pertains to the deduction for employees' contributions to welfare funds. The controversy arises when these contributions are deposited late. The Finance Act, 2021, introduced an amendment with Explanation 2, clarifying that Section 43B does not apply to determine the due date for such contributions, effective from April 1, 2021. This amendment is prospective, affecting assessment year 2021-22 onwards.

Precedents include the Himachal Pradesh High Court ruling in CIT vs. Nipso Polyfabriks Ltd., which held that no distinction exists between employees' and employer's contributions if deposited before the due date under Section 139.

Court's Interpretation and Reasoning:

The court interpreted the existing legal provisions and precedents, emphasizing that the amendment introduced by the Finance Act, 2021, is prospective. Therefore, for assessment years prior to 2021-22, the established position by various High Courts, including the Himachal Pradesh High Court, applies. This position allows for deductions if contributions are deposited before the due date specified under Section 139(1) of the Act.

Key Evidence and Findings:

The court found that the assessee had indeed deposited the employees' share of EPF and ESI contributions after the due date under the respective Acts but before the due date for filing the return under Section 139(1). This factual finding aligned with precedents that permitted such deductions.

Application of Law to Facts:

Applying the law to the facts, the court held that since the contributions were deposited before the due date under Section 139(1), the disallowance was unwarranted. The court relied on the precedent set by the Himachal Pradesh High Court and other similar judgments, which supported the assessee's position.

Treatment of Competing Arguments:

The court acknowledged the amendment introduced by the Finance Act, 2021, but clarified its prospective nature. This effectively neutralized any argument for disallowance based on the amendment for assessment years prior to 2021-22. The court favored the assessee's argument that the existing legal position, as upheld by various High Courts, should apply.

Conclusions:

The court concluded that the disallowance made by the Assessing Officer was not justified for the assessment years in question, as the contributions were deposited before the due date under Section 139(1). The appeals were thus allowed, and the additions directed to be deleted.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning:

The court stated, "In our opinion, this issue is no more res integra in view of several judgments allowing deduction u/s 36(1)(va) of employees' share of contribution deposited after due date under the respective Acts but before the date prescribed u/s 139 of the Act."

Core Principles Established:

The judgment reinforces the principle that for assessment years prior to 2021-22, deductions for late deposits of employees' contributions to EPF and ESI are permissible if made before the due date for filing the return under Section 139(1), notwithstanding the due date under the respective Acts.

Final Determinations on Each Issue:

The court directed the deletion of the disallowances made by the Assessing Officer for the assessment years in question, thereby allowing the appeals in favor of the assessee.

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