2021 (12) TMI 596 - AT - Income Tax

Additions in respect of employees contribution towards ESI/PF - Addition not made within the prescribed due date U/s 36(1)(va) of the Act and since these amount were not disallowed in the return of income filed by the assessee, the variance between the tax audit report and ITR has been duly flagged by the CPC in the computerized processing and disallowance u/s 143(1)(a)(iv) on the basis of fact furnished by the assessee was made which clearly fails within ambit of prima facie adjustment to be carried out u/s 143(1)(a)(iv) - HELD THAT -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) . In the instant case, the impugned assessment year is assessment year 2018-19 and therefore, the said amended provisions cannot be applied in the instant case. 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 employees s contribution towards ESI and PF 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.

Issues Involved:
1. Confirmation of additions in respect of employees' contribution towards ESI/PF.
2. Jurisdiction and authority of CIT(A) to confirm the disallowance post rectification order u/s 154.
3. Applicability of amendments to Section 36(1)(va) and Section 43B by the Finance Act, 2021.

Detailed Analysis:

Issue 1: Confirmation of Additions in Respect of Employees' Contribution towards ESI/PF
The assessee filed a return of income declaring total income of ?22,06,880/- for the assessment year 2018-19. The CPC made a disallowance of ?22,55,649/- towards employees' contribution to ESI and PF due to delayed payment beyond the prescribed due dates as per Section 36(1)(va) of the Act. The assessee appealed, arguing that the contributions were deposited before the due date of filing the return of income, citing precedents from the Rajasthan High Court and other tribunal decisions.

Issue 2: Jurisdiction and Authority of CIT(A) to Confirm the Disallowance Post Rectification Order u/s 154
During the appellate proceedings, the assessee highlighted a rectification order u/s 154 by the ITO, which resolved the disputed income, leading the assessee to seek withdrawal of the appeal. However, the CIT(A) proceeded to confirm the disallowance, stating that the rectification order did not alter the fact that contributions were paid late according to Section 36(1)(va). The CIT(A) invoked jurisdiction u/s 251(2) and issued a show-cause notice to the assessee, who failed to respond, leading to the confirmation of the disallowance.

Issue 3: Applicability of Amendments to Section 36(1)(va) and Section 43B by the Finance Act, 2021
The assessee argued that the amendment to Section 36(1)(va) by the Finance Act, 2021, effective from 1st April 2021, should not apply to the assessment year 2018-19. The tribunal agreed, noting that the explanatory memorandum to the Finance Act clearly states that the amendments apply from the assessment year 2021-22 onwards. The tribunal also referenced consistent decisions from various benches and the Karnataka High Court, which supported the view that contributions made before the due date of filing the return of income u/s 139(1) should not be disallowed under Section 43B read with Section 36(1)(va).

Conclusion:
The tribunal concluded that the employees' contributions to ESI and PF, deposited before the due date of filing the return of income u/s 139(1), should not be disallowed. The tribunal directed the deletion of the addition of ?22,55,649/- made by the CPC, thus allowing the appeal of the assessee. The tribunal emphasized the binding nature of the Rajasthan High Court's decisions and clarified that the amendments by the Finance Act, 2021, do not apply retrospectively to the assessment year 2018-19.

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