2021 (10) TMI 738 - AT - Income Tax

Delay in employee s contribution towards ESI/PF - contribution paid before the due date of filing of return of income u/s 139(1) - 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 - 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. Thus the 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 employee 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:
1. Disallowance of employee's contribution towards PF and ESI under Section 36(1)(va).
2. Applicability of recent amendments to Section 36(1)(va) introduced by the Finance Act, 2021.
3. Interpretation of due dates for depositing employee contributions to PF and ESI.

Analysis:
1. The appeal was filed against the disallowance of ?12,50,413 under Section 36(1)(va) for delayed payment of employees' PF and ESI contributions. The assessee argued that the contributions were deposited before the due date of filing the return of income, relying on precedents like CIT vs. Rajasthan State Beverages Corporation Ltd. The Revenue contended that the disallowance was justified as per the amended provisions and the law always required timely deposits. The Tribunal referenced similar cases and held that the contributions were deposited before the due date of filing the return, thus disallowance was unwarranted.

2. The dispute revolved around the applicability of the amendments to Section 36(1)(va) introduced by the Finance Act, 2021. The Revenue argued that the amendments were clarificatory and retrospective, while the assessee contended that they were prospective from 1st April, 2021. The Tribunal emphasized that the amendments did not apply to the assessment year in question (2019-20), and the contributions were made within the due date for filing the return of income.

3. The Tribunal extensively discussed the interpretation of due dates for depositing employee contributions to PF and ESI. Citing various High Court decisions, it established that contributions paid before the due date of filing the return of income under Section 139(1) could not be disallowed under Section 36(1)(va) and Section 43B. The Tribunal emphasized the binding nature of decisions from the jurisdictional High Court and directed the deletion of the disallowance made by the CPC, as the contributions were deposited before the due date of filing the return.

In conclusion, the Tribunal ruled in favor of the assessee, directing the deletion of the disallowance made under Section 36(1)(va) for delayed payment of employees' PF and ESI contributions. The Tribunal emphasized the importance of timely deposits before the due date of filing the return of income, as established by precedents and the specific provisions of the law.