2021 (11) TMI 771 - AT - Income Tax

Delayed payment of employees contribution to PF ESI - Addition under section 36(1)(va) - Contribution were paid late in terms of the provisions of ESIC and EPF, but before the filing of return of income for the present period - HELD THAT - Since in the instant case the assessee admittedly has deposited the employees contribution to PF ESI before the due date of filing of the income tax return, therefore, respectfully following the decisions INSTA EXHIBITIONS PVT. LTD, C/O. CHACHAN LATH 2021 (8) TMI 1235 - ITAT DELHI and PRO INTERACTIVE SERVICE (INDIA) PVT. LTD. 2018 (9) TMI 2009 - DELHI HIGH COURT hold that the Ld. CIT(A) is not justified in sustaining the adjustment made by the A.O-CPC on account of belated payment of employees contribution to PF ESI. Therefore, set aside the order of the Ld. CIT(A) and direct the A.O. to delete the disallowance. The grounds raised by the assessee are accordingly allowed.

Summary

Issues:
Disallowance of employees' contribution to PF & ESI made by the DCIT/A.O, CPC under section 143(1) for delayed payment.

Analysis:
The case involved an appeal by the Assessee against the Order of the Ld. CIT(A) confirming the disallowance of ?21,40,164/- for delayed payment of employees' contribution to PF & ESI. The DCIT/A.O, CPC made the disallowance under section 36(1)(va) of the I.T. Act, 1961. The Ld. CIT(A) upheld the disallowance, citing the failure of the Assessee to deposit the contributions before the specified dates. The Ld. CIT(A) relied on various decisions, including the Hon'ble Delhi High Court's ruling in a similar case, to support the disallowance.

The Assessee argued that recent amendments in Sections 36 and 43B of the Finance Bill 2021, effective from 01.04.2021, support the deduction of employees' contributions if paid before the due date of filing the income tax return under section 139(1). The Assessee referred to several decisions by Coordinate Benches of the Tribunal supporting this view. The Ld. D.R., however, supported the Ld. CIT(A)'s order, emphasizing that the Assessee did not make the deposits on time, justifying the disallowance.

The ITAT analyzed the rival arguments, reviewed the orders of the A.O. and Ld. CIT(A), and considered various decisions cited. The ITAT found that the DCIT, CPC computed the Assessee's income, making an adjustment for the belated payment of employees' contributions to PF & ESI under Section 143(1)(a)(iv). The ITAT referred to previous decisions, including those of the Hon'ble Delhi High Court, supporting the Assessee's position that payments made before the due date of filing the income tax return should not be disallowed.

The ITAT cited the decision of the Hon'ble Delhi High Court in a similar case, emphasizing that the legislative intent was to allow expenditure only when payments are actually made, not to treat belated payments as deemed income. The ITAT also referred to a Coordinate Bench's decision allowing belated deposits of employees' contributions to PF & ESI if paid before the due date of filing the income tax return. Ultimately, the ITAT held that the Ld. CIT(A) was not justified in sustaining the adjustment made by the A.O-CPC and directed the A.O. to delete the disallowance, allowing the Assessee's appeal.