2021 (11) TMI 1025 - AT - Income Tax

Additions of delayed employees contribution towards ESI/PF - AR submitted that the assessee-company deposited employee s contribution of PF/ESI though with a delay of few days from the due dates mentioned in the respective Acts however the same was deposited well before the due date of filing of return of income - HELD THAT - In the instant case admittedly and undisputedly the employees contribution to ESI and PF collected by the assessee from its employees have been deposited well before the due date of filing of return of income u/s 139(1) of the Act. Further the ld D/R has referred to the explanation to section 36(1)(va) and section 43B by the Finance Act 2021 and has also referred to the rationale of the amendment as explained by the Memorandum in the Finance Bill 2021 however we find that there are express wordings in the said memorandum which says these amendments will take effect from 1st April 2021 and will accordingly apply to assessment year 2021-22 and subsequent assessment years . In the instant case the impugned assessment year is assessment year 2019-20 and therefore the said amended provisions cannot be applied in the instant case - See SHRI GOPALAKRISHNA ASWINI KUMAR VERSUS THE ASSISTANT DIRECTOR OF INCOME TAX BENGALURU 2021 (10) TMI 952 - ITAT BANGALORE - Decided in favour of assessee.

Summary

Issues Involved:
1. Confirmation of additions in respect of employees' contribution towards ESI/PF.
2. Applicability of Section 36(1)(va) and Section 43B of the Income Tax Act.
3. Retrospective application of the amendment introduced by the Finance Act, 2021.

Detailed Analysis:

1. Confirmation of Additions in Respect of Employees' Contribution Towards ESI/PF:
The assessee filed its return of income on 30.09.2019 declaring a total income of ? 59,08,749/-. The return was processed under Section 143(1), and an intimation dated 10.07.2020 by CPC disallowed ? 1,70,599/- towards employees' contribution to ESI and PF due to late payment. The CIT(A), NFAC confirmed this disallowance, stating the failure to pay within the prescribed due dates under Section 36(1)(va). The assessee appealed against this order.

2. Applicability of Section 36(1)(va) and Section 43B of the Income Tax Act:
During the hearing, the assessee argued that although there was a delay in depositing the employees' contribution to ESI/PF beyond the due dates specified in the respective Acts, the payments were made before the due date for filing the return of income. The assessee cited various judgments, including CIT vs. Rajasthan State Beverages Corporation Ltd. (2017) and CIT vs. State Bank of Bikaner and Jaipur (2014), which supported the view that no disallowance should be made if the contributions are deposited before the due date of filing the return. The Department, however, argued that the disallowance was justified as the payments were not made within the due dates specified under Section 36(1)(va), and cited the amendment by the Finance Act, 2021, which clarifies that the contributions must be deposited within the due dates specified in the respective legislation.

3. Retrospective Application of the Amendment Introduced by the Finance Act, 2021:
The Tribunal acknowledged that the amendment to Section 36(1)(va) by the Finance Act, 2021, effective from 1st April 2021, applies prospectively from the assessment year 2021-22 onwards. The Tribunal noted the explanatory memorandum, which explicitly states that the amendments will apply from 1st April 2021. Therefore, the Tribunal concluded that the amended provisions could not be applied to the assessment year 2019-20.

Judgment:
The Tribunal referred to the consistent decisions of the Rajasthan High Court, which held that employees' contributions to ESI and PF, if paid before the due date of filing the return under Section 139(1), cannot be disallowed under Section 43B or Section 36(1)(va). The Tribunal emphasized that the CIT(A) should have followed the jurisdictional Rajasthan High Court's decisions, which are binding. Consequently, the Tribunal directed the deletion of the addition of ? 1,70,599/- made by CPC while processing the return under Section 143(1), as the contributions were paid before the due date of filing the return.

Conclusion:
The appeal of the assessee was allowed, and the addition made by CPC was directed to be deleted. The judgment underscored the non-retrospective application of the amendment introduced by the Finance Act, 2021, and reinforced the precedence of jurisdictional High Court decisions.