2021 (10) TMI 678 - AT - Income Tax

Delayed employees contribution to ESI and PF - Disallowing the PF and ESI payments as deposited before the due date of filing of the return during the year - 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 - As 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) of the Act is hereby directed to be deleted. - Decided in favour of assessee.

Summary

Issues:
Appeal against disallowance of PF and ESI payments | Interpretation of Section 36(1)(va) of the Act | Application of recent amendments by Finance Act, 2021

Analysis:
The appeal was filed against the disallowance of PF and ESI payments by the assessee. The assessee contended that the payments were made before the due date of filing the return of income, thus no disallowance should be made under Section 36(1)(va) of the Act. The assessee relied on various judicial precedents, including decisions of the Rajasthan High Court, to support their argument. The Revenue, on the other hand, argued that the disallowance was justified as per the provisions of the Act and recent amendments introduced by the Finance Act, 2021. The Revenue emphasized that the law is clear that employee's contributions should be paid within the prescribed due dates to qualify for deduction under Section 36(1)(va).

The Tribunal referred to a previous decision in the case of K.P. Airtech vs. DCIT, where a similar issue was extensively discussed. The Tribunal highlighted that the Rajasthan High Court and other High Courts consistently held that if the PF and ESI dues are paid before the due date of filing the return of income, they cannot be disallowed under Section 43B read with Section 36(1)(va) of the Act. The Tribunal emphasized the importance of following the decisions of the jurisdictional High Court, which in this case was the Rajasthan High Court.

The Tribunal noted that the Finance Act, 2021 amendments, which were clarificatory in nature, would only apply from the assessment year 2021-22 onwards. Since the impugned assessment year was 2019-20, the Tribunal held that the amendments could not be applied in the present case. Therefore, the Tribunal directed the deletion of the addition made by the CPC towards the deposit of employees' contributions towards ESI and PF, as they were paid before the due date of filing the return of income.

In conclusion, the Tribunal ruled in favor of the assessee, directing the deletion of the disallowance of PF and ESI payments. The Tribunal emphasized the importance of following judicial precedents and clarified that recent amendments would not apply retrospectively to the assessment year in question.