2021 (10) TMI 842 - AT - Income Tax

Delay in payment of employees contribution of PF u/s 36(1)(va) - Assessee submitted that payment made within due date of filing the return of income u/s 139(1) of the Act for the year under consideration - DR contention is that as per sec.43B(b) of the Income-tax Act and explanatory notes to Finance Act 1983, that Employees Contribution was never intended to be covered by sec.43B - HELD THAT - We find no merit in the argument of the ld. DR since the explanation as provided in Finance Act 2021 prescribes that the amendment in both sec.36(va) as well as 43B by inserting corresponding explanation that although impugned PF comes in the form of provision and the same is applicable from 1/4/2021 onwards only. In the present case we are concerned with the asst. year 2017-18 and the amended provision could not be applied retrospectively as it is only applicable w.e.f 1/4/2021. Being so no disallowance could be made by the AO in respect of PF/ESI paid within the due date of filing return of income. Though, it was beyond the date mentioned in the respective Act. This view of ours is supported by various judgment relied on by the ld.AR. Accordingly the appeal of the assessee is allowed.

Summary

Issues:
1. Disallowance of employees' contribution to PF under section 36(1)(va) of the Income-tax Act.

Detailed Analysis:

1. Disallowance of Employees' Contribution to PF:
The appeal was against the disallowance of an amount for delay in payment of employees' contribution to PF under section 36(1)(va) of the Income-tax Act. The assessee contended that the contribution was made within the due date of filing the return of income under section 139(1) of the Act for the relevant year, thus should not be disallowed. The assessee relied on the judgment in the case of Essac Teraoka (P.) Ltd. v. Dy. CIT 366 ITR 408 (Kar.) to support their argument. The Tribunal examined the provisions of the PF Act and the PF Scheme, emphasizing that the contribution should be paid on or before the due date for filing the return of income under section 139(1) of the IT Act to be eligible for deduction. The Tribunal disagreed with the revenue's argument that failure to deduct employees' contribution on time should be treated as income under the IT Act. The Tribunal endorsed its view with reference to a previous court decision and allowed the appeal in favor of the assessee, citing various judgments supporting their stance.

2. Legal Interpretations and Precedents:
The Tribunal also referred to the judgment of the Hon'ble Karnataka High Court in CIT v. Sabari Enterprises [2008] 298 ITR 141 (Kar.) to strengthen the argument regarding the due date for crediting contributions to employees' accounts. Additionally, the Tribunal discussed the amendment in section 43B of the Income-tax Act by the Finance Act 2003 and the subsequent explanatory notes to clarify the applicability of employees' contribution to PF. The Tribunal highlighted that the amended provision was effective from April 1, 2021, and could not be applied retrospectively to the assessment year 2017-18. Therefore, no disallowance could be made by the Assessing Officer for PF/ESI payments made within the due date of filing the return of income, even if they were beyond the dates specified in the respective Acts. The Tribunal concluded that the appeal of the assessee was justified based on the legal interpretations and precedents cited.

3. Conclusion:
In the final decision, the Tribunal allowed the appeal of the assessee, emphasizing that the disallowance of employees' contribution to PF under section 36(1)(va) of the Income-tax Act was not warranted in this case. The Tribunal's ruling was based on a thorough analysis of the relevant legal provisions, court judgments, and the effective date of the amendments, ensuring that the assessee's position was upheld. The order was pronounced on October 11, 2021, in favor of the assessee.