2022 (1) TMI 329 - AT - Income Tax

Employees contribution towards ESI/PF failure to pay the employee s contribution of PF/ESI within the prescribed due dates as per Section 36(1)(va) - Scope of amendment - 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 Addition by way of adjustment while processing the return of income u/s 143(1) amounting to ₹ 79,644/- 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. - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance of employees' contribution towards ESI/PF under Section 36(1)(va) of the Income Tax Act.
2. Applicability of amendments introduced by the Finance Act, 2021 to Section 36(1)(va) and Section 43B.
3. Scope of adjustments under Section 143(1) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Disallowance of Employees' Contribution Towards ESI/PF:
The primary issue in this case is the disallowance of ?79,644/- towards employees' contribution to ESI and PF due to late payment. The assessee argued that the contributions were deposited before the due date of filing the return of income under Section 139(1) of the Act, relying on precedents set by the Hon'ble 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 contributions were indeed deposited before the due date of filing the return, and thus, following the jurisdictional High Court's decisions, such contributions cannot be disallowed under Section 43B read with Section 36(1)(va) of the Act.

2. Applicability 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 employees' contributions must be deposited within the due dates specified in the respective legislation, should apply retrospectively. However, the Tribunal pointed out that the explanatory memorandum to the Finance Bill, 2021 explicitly states that these amendments will take effect from 1st April 2021 and apply to assessment year 2021-22 and subsequent years. Therefore, the Tribunal held that the amendments cannot be applied to the assessment year 2019-20 in question.

3. Scope of Adjustments Under Section 143(1) of the Income Tax Act:
The Revenue contended that the disallowance made under Section 143(1)(a)(iv) was justified as it was based on the variance between the tax audit report and the ITR filed by the assessee. The Tribunal, however, reiterated that since the contributions were deposited before the due date of filing the return, the adjustment made by the CPC was beyond the scope of Section 143(1) and should be deleted.

Conclusion:
The Tribunal concluded that the employees' contributions to ESI and PF, though deposited after the due dates specified in 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 disallowance of ?79,644/- made by the CPC. The appeal of the assessee was allowed.