2021 (12) TMI 1131 - AT - Income Tax

Late deposit of employees share of PF ESI which were deposited after the due date but before the due date of filing of return of income - AO made the additions of the impugned amounts for the reasons that the assessee did not deposit the amounts of employees contribution as per the provisions of section 36(1)(va) - HELD THAT - As decided in RAJA RAM VERSUS THE ITO, WARD 3 AND SANCHI MANAGEMENT SERVICES PRIVATE LIMITED VERSUS THE ITO, WARD 5 (2) , CHANDIGARH 2021 (11) TMI 370 - ITAT CHANDIGARH assessee deposited the contribution of PF ESI belated in terms of section 36(1)(va) of the Act, however, the said deposits were made prior to filing of return of income u/s 139(1). Impugned additions made by the Assessing Officer and sustained by the Ld. CIT(A) on account of deposits of employees contribution of ESI PF prior to filing of the return of income u/s 139(1) of the Act, in both the years under consideration prior to the amendment made by the Finance Act, 2021 w.e.f. 1.4.2021 vide Explanation 5, are deleted. - Decided in favour of assessee

Issues Involved:
1. Disallowance of ?9,36,495/- under Section 36(1)(va) for late payment of employees' share of EPF/ESIC.
2. Applicability of Section 43B(1)(b) and relevant judicial precedents.
3. Retrospective effect of amendments made by the Finance Act, 2021.
4. Scope of disallowance under Section 143(1).
5. Validity of the order passed by Ld. CIT(A)/NFAC.

Detailed Analysis:

1. Disallowance of ?9,36,495/- under Section 36(1)(va) for late payment of employees' share of EPF/ESIC:
The primary grievance of the assessee pertains to the disallowance of ?9,36,495/- made by the Assessing Officer (A.O.) due to late payments towards EPF and ESI under Section 36(1)(va) of the Income Tax Act, 1961. The disallowance was upheld by the Ld. CIT(A), National Faceless Appeal Centre (NFAC), Delhi. The assessee contended that the issue is covered by the ITAT, Chandigarh Bench's decisions in similar cases.

2. Applicability of Section 43B(1)(b) and relevant judicial precedents:
The assessee argued that the claim should be allowed under Section 43B(1)(b), supported by decisions from the Hon'ble Apex Court and jurisdictional High Court. The ITAT Bench noted that similar issues had been adjudicated in favor of the assessee in several cases, including Raja Ram Vs. ITO, Yamunanagar, and Sanchi Management Services Private Limited Vs. ITO, Chandigarh. The Tribunal reiterated that if the contributions were deposited before the filing of the return under Section 139(1), they should not be disallowed.

3. Retrospective effect of amendments made by the Finance Act, 2021:
The Ld. CIT(A)/NFAC had held that the amendments made in Section 36(1)(va) and 43B by the Finance Act, 2021, were clarificatory and had retrospective effect. However, the ITAT Bench referred to various judicial precedents, including decisions by the Kolkata and Hyderabad Benches, which held that the amendments were prospective and applicable from 01.04.2021. Therefore, the disallowance for the assessment years before this date was not justified.

4. Scope of disallowance under Section 143(1):
The assessee contended that the disallowance involving intense legal debate could not be made under the limited scope of Section 143(1). The Tribunal agreed, emphasizing that such disallowances should not be made through summary assessments under Section 143(1), especially when the issue is legally contentious and has been settled by higher judicial authorities.

5. Validity of the order passed by Ld. CIT(A)/NFAC:
The ITAT Bench found that the Ld. CIT(A)/NFAC's order was contrary to binding judicial precedents, including those from the Hon'ble Apex Court and jurisdictional High Courts. The Tribunal highlighted the principle of judicial discipline and the necessity to follow binding precedents. Consequently, the impugned order was deemed unsustainable and was set aside.

Conclusion:
The ITAT Bench allowed the appeal of the assessee, deleting the disallowance of ?9,36,495/- made under Section 36(1)(va). The Tribunal's decision was based on consistent judicial precedents that contributions made before the filing of the return under Section 139(1) should not be disallowed, and the amendments by the Finance Act, 2021, were prospective. The Tribunal underscored the importance of judicial discipline and adherence to binding precedents.

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