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2022 (1) TMI 250 - AT - Income TaxAdditions in respect of employees contribution towards ESI/PF - Deposits before the due date of filing of return of income u/s 139(1) - 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) - 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 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 though paid before the due date of filing of return of income u/s 139(1) of the Act is hereby directed to be deleted - Appeal of the assessee is allowed.
Issues Involved:
1. Confirmation of additions regarding employee's contribution towards ESI/PF. 2. Applicability of Section 36(1)(va) and Section 43B of the Income Tax Act. 3. Retrospective application of amendments introduced by the Finance Act, 2021. 4. Scope of adjustments under Section 143(1) of the Income Tax Act. Detailed Analysis: Issue 1: Confirmation of Additions Regarding Employee's Contribution Towards ESI/PF The assessee challenged the confirmation of additions made by the CIT(A) regarding the employee's contribution to ESI/PF for the assessment year 2018-19. The CPC had disallowed ?37,62,586/- due to the delayed deposit of these contributions beyond the due dates prescribed under the respective Acts. The CIT(A) upheld this disallowance, leading to the appeal. Issue 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 of filing the return of income under Section 139(1), relying on precedents from the Hon'ble Rajasthan High Court, including CIT vs. Rajasthan State Beverages Corporation Ltd. and CIT vs. State Bank of Bikaner and Jaipur. The assessee contended that no disallowance under Section 36(1)(va) should be made if the contributions are deposited before the return filing due date. Issue 3: Retrospective Application of Amendments Introduced by the Finance Act, 2021 The Revenue argued that the amendment to Section 36(1)(va) by the Finance Act, 2021, which clarifies that employee contributions must be deposited within the due dates specified in the respective Acts, should be considered retrospective. However, the Tribunal noted that the explanatory memorandum of the Finance Bill, 2021, explicitly states that these amendments apply from 1st April 2021 and are effective for the assessment year 2021-22 and subsequent years, not retrospectively. Issue 4: Scope of Adjustments Under Section 143(1) of the Income Tax Act The Tribunal examined whether the adjustment made by the CPC under Section 143(1)(a)(iv) was within the scope of prima facie adjustments. The Tribunal referenced the case of Mohangarh Engineers and Construction Company vs. DCIT, CPC, where it was held that contributions deposited before the due date of filing the return of income cannot be disallowed under Section 43B read with Section 36(1)(va). Conclusion: The Tribunal concluded that the employee contributions to ESI/PF, even if deposited after the due dates under the respective Acts but before the due date of filing the return of income under Section 139(1), cannot be disallowed under Section 43B read with Section 36(1)(va). The Tribunal directed the deletion of the addition of ?37,62,586/- made by the CPC. The appeal of the assessee was allowed, and the order was pronounced in the open court on 11/11/2021.
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