2022 (2) TMI 116 - AT - Income Tax

Delayed deposit of employees contributions qua ESI, PF and Labour Welfare Fund - payment after the due date as prescribed in the relevant Acts, however, before the due date of filing of return of income u/s.139(1) - HELD THAT - Jurisdictional High Court in the case of PCIT vs., Pro Interactive Service (India) Pvt. Ltd., 2018 (9) TMI 2009 - DELHI HIGH COURT while following the decision in the case of CIT Versus AIMIL Ltd. 2009 (12) TMI 38 - DELHI HIGH COURT has held that legislative intent was/is to ensure that the amount paid is allowed as expenditure only when payment is actually made. It was further held that it was not the legislative intent and objective to treat belated payment of Employees Provident Fund Employees State Insurance Scheme as deemed income of the employer under section 2(24)(x) of the I.T. Act, 1961. From the aforesaid Judgments of the Hon ble High Courts, it is clear that the Hon ble Courts have not drawn any distinction between the employee s and employer s share qua PF ESI contributions, hence, first determination of the Ld. CIT(A) qua non-applicability of the provisions of Section 43B of the Act to the employee s share qua PF, ESI and Labour Welfare Fund is unsustainable. Applicability of the amendment to Sections 36(1)(va) and Section 43B - Various benches of the ITAT including Hyderabad Bench in the case of Value Momentum Software Services Pvt. Ltd. 2021 (5) TMI 989 - ITAT HYDERABAD have taken into consideration the identical issue qua applicability of the amendment to Sections 36(1)(va) and Section 43B of the Act, by inserting Explanations by the Finance Act, 2021 and clearly held that the amendment shall be applicable from 1st April, 2021 onwards . It is also relevant to note that the CBDT has also issued Memorandum of Explanation qua applicability of the amended provisions of Sections 36(1)(va) 43B of the Act w.e.f. 1st April, 2021 and Assessment Year 2021-21 onwards, hence there is no doubt qua applicability of the amended provisions referred above, prospectively. The second aspect as considered by the ld. CIT(A) qua applicability of the amended provisions of Sections 36(1)(va) and 43B of the Act to the cases in hand, is also un-sustainable. - Decided in favour of assessee.

Summary

Issues involved:
Appeal against orders by CIT(A) regarding disallowances of employees' contributions to ESI, PF, and Labour Welfare Fund after due date but before filing return of income u/s.139(1) for assessment years 2018-19 and 2019-20.

Analysis:

1. Disallowances by Assessing Officer:
The issue pertains to the disallowances made by the Assessing Officer for employees' contributions towards ESI, PF, and Labour Welfare Fund deposited after the due date but before the filing of the return of income u/s.139(1) of the Income Tax Act, 1961. The CIT(A) partly sustained the additions made by the AO for both assessment years.

2. Arguments and Judgments:
The Assessee contended that no disallowance is warranted as contributions were deposited before the due date of filing the return of income. The Assessee relied on various judgments, including those by the Hon'ble Apex Court and High Courts. However, the CIT(A) declined the claim, citing judgments against the Assessee's contention by various High Courts.

3. Legal Precedents:
The controversy surrounding the issue has seen conflicting views by different High Courts. The Hon'ble Apex Court in CIT vs. M/s. Vegetables Products Ltd. laid down that if two reasonable constructions of a taxing provision are possible, the one favoring the Assessee should be adopted. Several judgments, including those by the Hon'ble Apex Court and various High Courts, supported the Assessee's position on the issue.

4. Applicability of Amended Provisions:
The CIT(A) considered the amended provisions of Sections 36(1)(va) and 43B of the Act, inserted by the Finance Act, 2021. The Explanations clarified that the provisions of Section 43B shall not apply for determining the due date under Section 36(1)(va). Various ITAT benches, including the Hyderabad Bench, held that the amendment applies prospectively from 1st April 2021 onwards.

5. Decision and Conclusion:
After thorough analysis, the Tribunal found that the disallowances made by the AO and sustained by the CIT(A) were not sustainable. The Tribunal held that the Assessee's contributions towards ESI, PF, and Labour Welfare Fund, deposited before the due date of filing the return of income, should not be disallowed. Therefore, the appeals of the Assessee were allowed, and the disallowances were deleted for both assessment years.

This detailed analysis highlights the legal arguments, precedents, and the Tribunal's decision regarding the disallowances of employees' contributions to ESI, PF, and Labour Welfare Fund in the mentioned judgment.