2021 (9) TMI 769 - AT - Income Tax

Disallowance made u/s 143(1) on account of assessee s failure to pay the employee s contribution of PF/ESI within the prescribed due dates as per Section 36(1)(va) - HELD THAT - 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, it is noted that the ld CIT(A) has referred to the explanation to section 36(1)(va) and section 43B introduced 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, he has simply failed to consider the 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 . The impugned assessment year is assessment year 2019-20 and therefore, the said amendment cannot be applied in the instant case. Addition by way of adjustment while processing the return of income u/s 143(1) so made by the CPC towards the deposit of the employees s contribution towards ESI and PF though paid before the due date of filing of return of income u/s 139(1) is hereby directed to be deleted - Decided in favour of assessee.

Summary

Issues Involved:
Disallowance of employee's contribution towards ESI and PF under Section 36(1)(va) of the Income Tax Act, 1961 in the assessment year 2019-20.

Detailed Analysis:
1. The appeal was filed against the order of the ld. CIT(A) confirming the disallowance made under Section 143(1) for the employee's contribution towards ESI and PF. The assessee argued that the contribution was deposited before the due date of filing the return of income, thus no disallowance should be made under Section 36(1)(va) of the Act.

2. The assessee relied on various judicial precedents, including decisions of the Rajasthan High Court, to support their contention that timely deposit before filing the return of income should not lead to disallowance. The amendment introduced by the Finance Act, 2021 was also discussed, emphasizing its applicability from the assessment year 2021-22 and not to the impugned assessment year.

3. The Revenue argued that the disallowance was justified as the payment was not made within the prescribed due date as per the tax audit report. They highlighted the retrospective applicability of the amendment to Section 36(1)(va) and 43B, stating that the law always required timely payment for deduction.

4. The Tribunal referred to a previous case where a similar issue was addressed, emphasizing that payment before the due date of filing the return of income should not lead to disallowance. The Tribunal considered the express wording in the Finance Act, 2021, stating that the amendment would apply from the assessment year 2021-22, not to the assessment year in question.

5. Based on the discussions and precedents cited, the Tribunal concluded that the disallowance made by the CPC towards the employee's contribution to ESI and PF, despite being paid before the due date of filing the return of income, should be deleted. The appeal of the assessee was allowed.

This detailed analysis highlights the arguments presented by both parties, the reliance on judicial precedents, the interpretation of the law, and the final decision of the Tribunal in favor of the assessee, emphasizing the timely deposit of employee contributions as a crucial factor in determining disallowance under Section 36(1)(va) of the Income Tax Act, 1961.