2022 (1) TMI 27 - AT - Income Tax

Delayed payment of ESI and PF by invoking the provisions of section 36 (1) (v) - Revenue disallowed the same in the impugned year by applying the amendment made by Finance Act 2021 to section 36 (1) (va) and 43 B of the Act allowing the claim of such deduction only when paid by due dates specified in their respective Acts, holding the amendment to be applicable on all pending cases post the amendment - HELD THAT - M/S CRESCENT ROADWAYS PRIVATE LIMITED. 2021 (7) TMI 1265 - ITAT HYDERABAD and INSTA EXHIBITIONS PVT. LTD, C/O. CHACHAN LATH VERSUS ADDL. CIT, SPECIAL RANGE-4, NEW DELHI 2021 (8) TMI 1235 - ITAT DELHI consistently holding that the amendment to section 36 (1) (va) and u/s 43B of the Act effected by the Finance Act 2021 is applicable prospectively, reading from the Notes on Clauses at the time of introduction of the Finance Act, 2021, specifically stating the amendment being applicable in relation to assessment year 2021 - 22 and subsequent years. Therefore the addition, we hold, cannot be made on the strength of the amendment effected by Finance Act 2021 to section 36 (1) (va)/43 B of the Act. Moreover it is an admitted position that the jurisdictional High Court has in various decisions held that employees contribution to ESI PF is allowable if paid by the due date of filing return of income u/s 139 (1) We hold that the claim of employees contribution to ESI and PF as per section 36 (1) (va) of the Act cannot be denied in the impugned year, i. e. 2019 - 20 on the basis of amendment made to the section by Finance Act 2021. The order of the Ld. CIT(A) upholding the said disallowance is therefore set aside and the AO is directed to allow the claim of the assessee.

Summary

Issues:
Addition made on account of delayed payment of ESI and PF

Analysis:
The appeal was filed against the order of the Learned Commissioner of Income Tax (Appeals) regarding the addition made on account of delayed payment of ESI and PF. The issue revolved around the interpretation of the amendments made by the Finance Act, 2021 to section 36(1)(va) and section 43B of the Income Tax Act, 1961. The Ld.CIT(A) upheld the addition, stating that the due date for payment of employees' contribution to ESI and PF, for claiming deduction, was not governed by section 43B but by the due date specified in their respective Acts. The Ld.CIT(A) applied the amendments retrospectively to pending matters, disregarding the jurisdictional High Court's decisions in favor of the assessee.

The assessee argued that various ITAT Benches had ruled in favor of the assessee on this issue. The ITAT considered decisions from different Benches, including Hyderabad and Chandigarh, supporting the assessee's position. The Revenue failed to present any contrary judgments or distinguishing facts. The ITAT acknowledged that the employees' contribution to ESI and PF had been allowed as a deduction based on decisions of the jurisdictional High Court, where contributions deposited by the due date of filing of the return of income were considered allowable.

After reviewing the orders of the coordinate Benches and other decisions, the ITAT concluded that the amendments made by the Finance Act, 2021 were applicable prospectively, from assessment year 2021-22 onwards. The ITAT emphasized that the jurisdictional High Court had consistently held that employees' contribution to ESI and PF was allowable if paid by the due date of filing the return of income under section 139(1) of the Act. Therefore, the ITAT set aside the Ld.CIT(A)'s disallowance and directed the AO to allow the claim of the assessee. Consequently, the appeal of the assessee was allowed, and the order was pronounced on October 4, 2021.