2021 (11) TMI 409 - AT - Income Tax

Disallowance on account of delay in deposit of employee share of ESI and EPF - assessee had deposited before due date of filing of ITR - disallowance made by CPC under section 143(1) on debatable issue - HELD THAT - Since the facts involved in the present case are identical to the facts involved in the case of Raja Ram Vs. ITO, Yamunanagar 2021 (11) TMI 370 - ITAT CHANDIGARH Addition by way of adjustment while processing the return of income u/s. 143(1) so made by the CPC towards the delayed deposit of the employees's contribution towards ESI and PF though paid well before the due date of filing of return of income u/s. 139(1) of the Act is hereby directed to be deleted as the same cannot be disallowed under section 43B read with section 36(1)(va)So respectfully following the aforesaid referred to order of the Coordinate Bench of the Tribunal, the disallowances sustained by the Ld. CIT(A) are deleted.- Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance of ?706,790 due to delay in deposit of employee share of ESI and EPF.
2. Disallowance made by CPC under section 143(1) on a debatable issue.

Issue-wise Detailed Analysis:

1. Disallowance of ?706,790 due to delay in deposit of employee share of ESI and EPF:

The primary grievance of the assessee is the disallowance of ?706,790 made by the Assessing Officer (A.O.) due to late payments towards Employees' Provident Fund (EPF) and Employees' State Insurance (ESI) under section 36(1)(va) of the Income Tax Act, 1961. The assessee had deposited these contributions before the due date of filing the Income Tax Return (ITR) under section 139(1) of the Act. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld this disallowance, which led to the present appeal.

The assessee's counsel argued that this issue is covered by the ITAT Chandigarh Bench's order dated 20/10/2021 in similar cases, including Raja Ram Vs. ITO and Sanchi Management Services Private Limited Vs. ITO. The counsel emphasized that the contributions were made before the filing of the return of income, and thus should not be disallowed.

The Tribunal considered the submissions and noted that an identical issue had been adjudicated in several cases by different benches of the ITAT. These cases consistently held that if the employees' contributions to EPF and ESI are deposited before the due date of filing the return of income under section 139(1), they should not be disallowed. The Tribunal cited various decisions, including those of the ITAT Jodhpur Bench and ITAT Kolkata Bench, which supported the assessee's position.

The Tribunal also referred to the decision of the Hon'ble Calcutta High Court in the case of Vijayshree Ltd., which held that the amendment to the second proviso to Section 43(B) of the Income Tax Act, introduced by the Finance Act, 2003, is curative and applies retrospectively. This amendment allows for the deduction of amounts paid towards employees' contributions to EPF and ESI if paid before the filing of the return of income.

In light of these precedents, the Tribunal concluded that the disallowance sustained by the CIT(A) was not justified. The Tribunal directed the deletion of the disallowance, thereby allowing the appeal of the assessee.

2. Disallowance made by CPC under section 143(1) on a debatable issue:

The assessee also contended that the disallowance of ?706,790 made by the Centralized Processing Centre (CPC) under section 143(1) was on a debatable issue. The Tribunal's analysis on this point was intertwined with the first issue, as the core argument revolved around the timing of the deposit of employees' contributions and the applicability of relevant legal provisions.

The Tribunal's decision to delete the disallowance implicitly addressed the debatable nature of the issue, reinforcing that the CPC's action under section 143(1) was not warranted given the established legal interpretations and precedents.

Conclusion:

The Tribunal, after considering the submissions and reviewing the precedents, allowed the appeal of the assessee. The disallowance of ?706,790 on account of late payments towards EPF and ESI was deleted, as the contributions were made before the due date of filing the return of income under section 139(1). The Tribunal's decision was consistent with various ITAT and High Court rulings that supported the assessee's position.