2022 (1) TMI 1060 - AT - Income Tax

Allowability of deduction u/s 36(1)(va) read with Section 2(24)(x) - delayed deposit of employee contribution towards PF/ESI - Deposits beyond the time provided under the relevant statute governing PF/ESI but deposited before the due date for filing of return of income as prescribed u/s 139(1) - Scope of amendment by Finance Act , 2021 in Section 36(1)(va) and 43B of the 1961 Act - HELD THAT - Amendment made by Finance Act, 2021 in Section 36(1)(va) and 43B are prospective in nature and shall be applicable from ay 2021- 22 and subsequent assessment years, and consequently shall not have any retrospective effect. Hon'ble Jurisdictional High Court in the case of Sagun Foundry Private Limited 2016 (12) TMI 1479 - ALLAHABAD HIGH COURT has held that deduction is to be allowed for belated payment of employee contribution to PF/ESI which is deposited beyond the due date stipulated under the relevant statutes governing PF/ESI but the same stood deposited before the due date for filing of return of income as is prescribed u/s 139(1) of the 1961 Act. It is also to be noted that while deciding this issue in Sagun Foundry(supra) in favour of the tax-payer , the Hon ble Allahabad has duly discussed Hon ble Supreme Court decision in Alom Extrusion 2009 (11) TMI 27 - SUPREME COURT and then decided this issue in favour of the tax-payer. Respectfully following the aforesaid decision in assessee s own case for ay 2018-19 2022 (1) TMI 1000 - ITAT ALLAHABAD in which both of us were part of the Division Bench who pronounced the order, we hold that in the instant appeal for ay 2019-20 if the employee share of PF/ESI is deposited by employer to the credit of employee with the relevant fund maintained for PF/ESI before the due date of filing of return of income u/s 139(1) of the 1961 Act, then the assessee shall be entitled for deduction u/s 36(1)(va) of the 1961 Act. The assessee s counsel has filed tax-audit report in which detail/ bifurcations of employee share of PF/ESI along with date of payment is mentioned(page 66/pb), but challans are not filed. The said tax-audit report is placed on record in file. Thus for limited purposes , we are directing AO to verify the challans evidencing deposit of aforesaid employee share of PF/ESI and that it was deposited before the due date prescribed for filing of return of income u/s 139(1), before allowing claim of deduction u/s 36(1)(va) of the 1961 Act. The assessee is directed to file before AO complete details/bifurcation of employees share of PF/ESI which was added to income of the assessee u/s 36(1)(va) read with Section 2(24)(x) along with relevant paid challans, for verification. While passing the above order, we also note that several Division Benches of ITAT across Country have now passed appellate orders even after considering the amendments made to Section 36(1)(va) and 43B of the 1961 Act by Finance Act, 2021, holding that if the employee share of PF/ESI is deposited by employer to the credit of employee with the relevant fund maintained for PF/ESI before the due date of filing of return of income u/s 139(1) of the 1961 Act, then the tax-payer shall be entitled for deduction u/s 36(1)(va) - thus assessee succeeds in this appeal

Summary

Issues Involved:
1. Allowability of deduction under Section 36(1)(va) read with Section 2(24)(x) of the Income-tax Act, 1961 for delayed deposit of employee contribution towards PF/ESI.
2. Applicability of amendments made by Finance Act, 2021 to Section 36(1)(va) and 43B of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Allowability of Deduction under Section 36(1)(va) read with Section 2(24)(x) for Delayed Deposit of Employee Contribution towards PF/ESI:

The assessee filed its return of income declaring a total income which included an addition of ?11,20,461 due to delayed deposit of employee contributions towards PF/ESI. The AO invoked Section 36(1)(va) read with Section 2(24)(x) of the Income-tax Act, 1961, disallowing the deduction as the deposits were not made within the prescribed time under the relevant statute governing PF/ESI. The CIT(A) upheld this disallowance, referencing judicial decisions that allowed deductions if deposits were made before the due date for filing the return under Section 139(1), but noted that this was negated by the Finance Act, 2021 amendments.

The assessee argued that the employee share of PF/ESI should be allowed as a deduction if deposited before the due date for filing the return under Section 139(1). The tribunal, considering its own previous decision in the assessee's case for AY 2018-19 and other judicial precedents, held that if the employee share of PF/ESI is deposited before the due date for filing the return under Section 139(1), the deduction should be allowed under Section 36(1)(va).

2. Applicability of Amendments made by Finance Act, 2021 to Section 36(1)(va) and 43B:

The Finance Act, 2021 introduced amendments to Section 36(1)(va) and 43B, clarifying that the provisions of Section 43B do not apply to employee contributions to PF/ESI. The tribunal noted that the amendments were stated to be applicable from AY 2021-22 onwards, as per the Memorandum to Finance Bill, 2021, which aimed to provide certainty and rationalize the provisions.

The tribunal observed that several High Courts, including the jurisdictional Allahabad High Court, had interpreted the provisions to allow deductions for delayed deposits made before the due date for filing the return under Section 139(1). The tribunal emphasized the principle of consistency and judicial discipline, following the Allahabad High Court's decision in Sagun Foundry Private Limited, which allowed such deductions.

The tribunal rejected the Revenue's contention that the amendments were clarificatory and retrospective, citing the explicit prospective applicability stated in the Finance Bill. The tribunal also highlighted the Government's policy to reduce litigation and provide certainty in tax matters.

Conclusion:

The tribunal allowed the assessee's appeal, directing the AO to verify the challans evidencing the deposit of the employee share of PF/ESI before the due date for filing the return under Section 139(1). The tribunal held that the amendments by Finance Act, 2021 are prospective and applicable from AY 2021-22 onwards, and thus, the assessee is entitled to the deduction for AY 2019-20.