2022 (1) TMI 778 - 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) - Scope of amendment - HELD THAT - Admittedly and undisputedly, the employees contribution to ESI and PF co llected 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. Thus 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.- Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance of employee's 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).

Issue-wise Detailed Analysis:

1. Disallowance of Employee's Contribution towards ESI/PF under Section 36(1)(va):
The assessee filed a return of income declaring a total income of ?16,28,452/-, which was processed under Section 143(1). The Centralized Processing Center (CPC) made a disallowance of ?5,28,854/- towards the employee's contribution to ESI and PF, citing the assessee's failure to deposit these contributions within the prescribed due dates under Section 36(1)(va) of the Act. The CIT(A) confirmed this disallowance. The assessee argued that although there was a delay of a few days from the due dates mentioned in the respective Acts, the contributions were deposited before the due date of filing the return of income. The assessee relied on decisions from the Rajasthan High Court and other Tribunal decisions, which held that no disallowance should be made if the contributions were deposited before the return filing due date under Section 139(1).

The Department Representative (DR) countered that the delay in deposit beyond the prescribed due dates under Section 36(1)(va) warranted disallowance. The DR emphasized that the CPC's disallowance was justified under Section 143(1)(a)(iv) as a prima facie adjustment based on the tax audit report.

The Tribunal noted that the issue had been extensively dealt with in previous cases, particularly by the Rajasthan High Court, which consistently held that contributions deposited before the return filing due date under Section 139(1) should not be disallowed. The Tribunal reiterated that the jurisdictional High Court's decisions are binding and should be followed by the appellate authorities and assessing officers within the state.

2. Applicability of Amendments Introduced by the Finance Act, 2021 to Section 36(1)(va):
The DR also referred to the amendments introduced by the Finance Act, 2021, which clarified that employee's contributions to specified funds would not be allowed as deductions if there was any delay in deposit, even by a single day. The DR argued that these amendments were declaratory/clarificatory and should apply retrospectively.

The Tribunal, however, found that the explanatory memorandum to the Finance Bill, 2021, explicitly stated that these amendments would take effect from 1st April 2021 and apply to assessment year 2021-22 and subsequent years. Therefore, these amendments could not be applied to the assessment year 2018-19.

The Tribunal concluded that the contributions were deposited well before the due date of filing the return of income under Section 139(1) and, following the binding decisions of the Rajasthan High Court, directed the deletion of the disallowance of ?5,28,854/- made by the CPC.

Conclusion:
The appeal of the assessee was allowed, and the disallowance made by the CPC was deleted. The Tribunal emphasized adherence to the jurisdictional High Court's decisions and clarified the prospective application of the amendments introduced by the Finance Act, 2021.