2022 (2) TMI 870 - AT - Income Tax

Failure to pay the employees' contribution of ESI PF within the prescribed due date under the relevant Statute as per section 36(1)(va) - scope of amendment - assessee has deposited employees' contribution towards ESI and PF though with the delay of few days from the due date mentioned in the respective Statutes, however, the same was deposited well before the due date of filing of return of income u/s. 139(1) - HELD THAT - It is a consistent position across various Benches of the Tribunal including Chandigarh Benches that the amendment which has been brought in by the Finance Act, 2021 shall apply w.e.f. assessment year 2021-22 and subsequent assessment years and the impugned assessment year being assessment year 2017-18, the said amendment cannot be applied in the instant case. Therefore, considering the entirety of facts and circumstances of the case and following the decisions of various High Courts as well as Coordinate Benches of the Tribunal the addition made by way of adjustment while processing the return of income u/s. 143(1) so made by the CPC towards the deposit of employees' contribution towards ESI and PF paid before the due date of filing of the return of income u/s. 139(1) of the Act, is hereby directed to be deleted. - Decided in favour of assessee.

Issues Involved:
1. Disallowance of employees' contribution towards ESI and PF under Section 36(1)(va) of the Income Tax Act, 1961.
2. Applicability of amendments introduced by the Finance Act, 2021 to Section 36(1)(va) and Section 43B of the Income Tax Act.

Detailed Analysis:

1. Disallowance of Employees' Contribution towards ESI and PF:

The primary issue revolves around the disallowance of employees' contributions towards ESI and PF, which were deposited after the due date specified under the respective statutes but before the due date of filing the return of income under Section 139(1) of the Income Tax Act, 1961. The assessee filed its return of income declaring a total income of ?70,44,062, which was processed under Section 143(1) of the Act. The CPC made a disallowance of ?7,49,608 towards employees' contributions to ESI and PF.

On appeal, the Ld. CIT(A), NFAC confirmed the disallowance, citing the assessee's failure to pay within the prescribed due date under the relevant statute as per Section 36(1)(va) of the Act. The assessee argued that the contributions were deposited before the due date of filing the return of income under Section 139(1) and thus should not be disallowed. The assessee relied on several judicial precedents, including decisions from the Hon'ble Rajasthan High Court and the Hon'ble Supreme Court.

The Tribunal noted that the issue is no longer res integra, as several High Courts have consistently held that contributions deposited before the due date of filing the return of income under Section 139(1) cannot be disallowed under Section 36(1)(va) read with Section 43B of the Act. The Tribunal referred to various decisions, including those from the Rajasthan High Court, Punjab & Haryana High Court, and Himachal Pradesh High Court, which supported the assessee's contention.

2. Applicability of Amendments by Finance Act, 2021:

The Ld. DR argued that the amendments introduced by the Finance Act, 2021, which provided an explanation to Section 36(1)(va), clarified that employees' contributions would not be allowed as a deduction if not deposited within the due dates specified under the respective statutes. The Ld. DR contended that these amendments were clarificatory in nature and should apply retrospectively.

However, the Tribunal found that the explanatory memorandum to the Finance Act, 2021, explicitly stated that the amendments would take effect from 1st April 2021 and apply to the assessment year 2021-22 and subsequent years. Therefore, these amendments could not be applied retrospectively to the assessment years under consideration (2017-18, 2018-19, and 2019-20).

The Tribunal also referred to decisions from various Benches, including the Bangalore Benches and Calcutta Benches, which consistently held that the amendments were prospective and not retrospective. Consequently, the Tribunal directed the deletion of the disallowance made by the CPC for the delayed deposit of employees' contributions towards ESI and PF, as these were paid before the due date of filing the return of income under Section 139(1).

Conclusion:

The Tribunal allowed all three appeals filed by the respective assessees, directing the deletion of the disallowance made under Section 36(1)(va) for the delayed deposit of employees' contributions towards ESI and PF, as these were deposited before the due date of filing the return of income under Section 139(1). The amendments introduced by the Finance Act, 2021, were held to be prospective and not applicable to the assessment years in question.

← Previous Next →