2022 (2) TMI 75 - AT - Income Tax

Late deposit of ESI PF - disallowance u/s 36(1)(va) - AR has pointed to the statement of the deposits made during the year and from that table he has pointed out that though there has been delay in deposit of the PF/ESIC Contributions, but, all the amounts have been deposited with the appropriate authorities before filing of return of income by the assessee - HELD THAT - We find that the various Benches of the Tribunal at Delhi and other Tribunal have held that the delayed deposits of PF ESIC before the date of filing of return of income is an allowable expenditure and for which reliance was placed on the decision of Hon ble Delhi High Court in the case of AIMIL Ltd 2009 (12) TMI 38 - DELHI HIGH COURT As far as reliance by Learned DR on the amendment brought out by Finance Act 2021 is concerned, notes on clauses to the Finance Bill 2021 clearly states that the amendment will take effect from 1st April 2021 and will apply in relation to the assessment year 2021-22 and subsequent assessment year. In such a situation, we are of the view that since the assessment year under consideration is A.Y. 2018-19, the amendment does not apply to the assessment year under consideration - no disallowance was warranted in the present case. We, therefore direct the AO to delete the addition. Thus the assessee s ground is allowed. Claim of Education Cess as an allowable expenditure - HELD THAT - As respectfully following the decision of the Coordinate Bench of the Tribunal in the case of EXL Services.com India Pvt. Ltd., New Delhi vs., ACIT, Large Taxpayer Unit, Circle 1, New Delhi ( 2021 (9) TMI 361 - ITAT DELHI ), direct the AO to allow the claim of deduction. Thus the ground of assessee is allowed.

Summary

Issues Involved:
1. Disallowance under Section 36(1)(va) of the IT Act for delayed deposit of employee shares of ESI/PF.
2. Claim of Education Cess as an allowable expenditure under Section 40(a)(ia) of the IT Act.

Issue-wise Detailed Analysis:

1. Disallowance under Section 36(1)(va) of the IT Act for Delayed Deposit of Employee Shares of ESI/PF:

The primary issue in these appeals pertains to the disallowance of ?20,52,429/- under Section 36(1)(va) of the Income Tax Act for the delayed deposit of employee shares of ESI/PF. The assessee argued that the contributions were deposited before the due date for filing the return of income under Section 139(1) of the IT Act, citing decisions from the jurisdictional Delhi High Court and other tribunals which held such deposits allowable if made before the return filing due date. The Revenue, however, contended that the amendment brought by Finance Act 2021, which clarifies that provisions of Section 43B shall not apply to sums received from employees, should apply retrospectively.

The Tribunal, after reviewing the submissions and material on record, held that the amendment by Finance Act 2021 applies prospectively from 1st April 2021 and is not applicable to the assessment year under consideration (A.Y. 2018-19). The Tribunal also noted that various benches, including the Delhi High Court in AIMIL Ltd., have consistently held that delayed deposits of PF/ESIC contributions are allowable if deposited before the filing of the return of income. Consequently, the Tribunal directed the AO to delete the addition, allowing the assessee's ground.

2. Claim of Education Cess as an Allowable Expenditure under Section 40(a)(ia) of the IT Act:

The second issue involved the claim of ?1,15,677/- paid towards Education Cess as an allowable expenditure. The assessee argued that this ground, though not raised before the CIT(A), is a legal ground that can be raised at any stage, supported by the Supreme Court's decision in NTPC. The Tribunal admitted the additional ground, emphasizing that the purpose of assessment proceedings is to correctly assess the tax liability in accordance with law.

On merits, the assessee cited the Rajasthan High Court's decision in Chambal Fertilisers and Chemicals Ltd. and the Bombay High Court's decision in Sesa Goa Ltd., which held that education cess is an allowable deduction as it does not fall within the ambit of Section 40(a)(ii) of the IT Act. The Tribunal, following the precedent set by the Coordinate Bench in EXL Services.com India Pvt. Ltd., directed the AO to allow the claim of deduction for education cess, thus allowing the assessee's ground.

Conclusion:

In conclusion, the Tribunal allowed all the appeals of the assessee for the assessment years 2018-19 and 2019-20, directing the AO to delete the disallowances under Section 36(1)(va) for delayed deposits of ESI/PF and to allow the deduction for education cess. The Tribunal's decision was based on consistent judicial precedents and the prospective applicability of the Finance Act 2021 amendment.