2021 (12) TMI 972 - AT - Income Tax

Additions in respect of employees contribution towards ESI/PF - assessee s failure to pay the employee s contribution of PF/ESI within the prescribed due dates as per Section 36(1)(va) - 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. Further, the ld D/R has referred to the explanation to section 36(1)(va) and section 43B 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, we find that there are 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 . In the instant case, the impugned assessment year is assessment year 2019-20 and therefore, the said amended provisions cannot be applied in the instant case. See SHRI GOPALAKRISHNA ASWINI KUMAR VERSUS THE ASSISTANT DIRECTOR OF INCOME TAX, BENGALURU 2021 (10) TMI 952 - ITAT BANGALORE - Decided in favour of assessee.

Summary

Issues Involved:
1. Confirmation of additions in respect of employees' contribution towards ESI/PF.
2. Applicability of Section 36(1)(va) and Section 43B of the Income Tax Act.
3. Retrospective application of the amendment introduced by the Finance Act, 2021.
4. Scope of adjustments under Section 143(1) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Confirmation of Additions in Respect of Employees' Contribution Towards ESI/PF:
The assessee filed its return of income for the assessment year 2019-20, declaring a total income of ?1,24,74,138/-. The Central Processing Centre (CPC) made a disallowance of ?11,81,570/- towards employees' contribution to ESI and PF, as these were not paid within the prescribed due dates under Section 36(1)(va) of the Act. The CIT(A) confirmed this disallowance, leading to the present appeal.

2. Applicability of Section 36(1)(va) and Section 43B of the Income Tax Act:
The assessee argued that the contributions were deposited before the due date for filing the return of income under Section 139(1), relying on the decisions of the Rajasthan High Court in CIT vs. Rajasthan State Beverages Corporation Ltd. and CIT vs. State Bank of Bikaner and Jaipur. The Tribunal noted that the employees' contributions were indeed deposited before the due date of filing the return, aligning with the precedents set by the Rajasthan High Court, which held that such contributions cannot be disallowed if paid before the due date of filing the return.

3. Retrospective Application of the Amendment Introduced by the Finance Act, 2021:
The Revenue argued that the amendment to Section 36(1)(va) by the Finance Act, 2021, clarifies that employees' contributions must be paid within the due dates specified in the respective legislation. However, the Tribunal observed that the explanatory memorandum to the Finance Act, 2021, explicitly states that the amendments would apply from 1st April 2021 and to assessment years 2021-22 onwards. Therefore, the amendments cannot be applied retrospectively to the assessment year 2019-20.

4. Scope of Adjustments Under Section 143(1) of the Income Tax Act:
The Tribunal examined whether the disallowance made by the CPC under Section 143(1) was within the scope of prima facie adjustments. It concluded that since the contributions were deposited before the due date of filing the return, the disallowance was not justified. The Tribunal emphasized that the CIT(A) should have followed the jurisdictional Rajasthan High Court's decisions, which are binding on the appellate authorities and the Assessing Officer within its jurisdiction.

Conclusion:
The Tribunal directed the deletion of the addition of ?11,81,570/- made by the CPC towards the employees' contribution to ESI and PF, as these were deposited before the due date of filing the return of income under Section 139(1). The appeal of the assessee was allowed, and the order was pronounced in the open Court on 15/11/2021.