2022 (3) TMI 873 - AT - Income Tax

Additions in respect of employees contribution towards ESI/PF - Amount paid before the due date of filing of return of income u/s 139(1) - Scope of amendment - HELD THAT - In instant case admittedly and undisputedly the employees contribution to ESI and PF collected by the assessee from its employees have been deposited well before the due date of filing of return of income u/s 139(1) of the Act. Further the ld 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. 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. Confirmation of additions in respect of employees' contribution towards ESI/PF.
2. Applicability of Section 36(1)(va) and Section 43B of the Income Tax Act.
3. Retrospective applicability of amendments introduced by the Finance Act, 2021.

Detailed Analysis:

1. Confirmation of Additions in Respect of Employees' Contribution towards ESI/PF:
The assessee filed its return of income for the assessment year 2018-19, which included a disallowance of ?9,61,543/- for delayed payment of employees' contributions towards ESI and PF. The CIT(A) confirmed this disallowance based on the assessee's failure to pay within the prescribed due dates as per Section 36(1)(va) of the Income Tax Act. The assessee appealed against this order, arguing that the contributions were deposited before the due date for filing the return of income, thus no disallowance should be made.

2. Applicability of Section 36(1)(va) and Section 43B of the Income Tax Act:
The assessee contended that the contributions were made before the due date of filing the return of income, citing the Rajasthan High Court's decisions in CIT vs. Rajasthan State Beverages Corporation Ltd. and CIT vs. State Bank of Bikaner and Jaipur. These decisions held that contributions made before the return filing due date cannot be disallowed under Section 43B read with Section 36(1)(va). The Tribunal referred to these decisions and similar rulings by other benches, affirming that contributions deposited before the return filing due date are allowable deductions.

3. Retrospective Applicability of Amendments Introduced by the Finance Act, 2021:
The Revenue argued that the amendments to Section 36(1)(va) by the Finance Act, 2021, which clarified that employees' contributions must be paid within the due dates specified in the respective legislations, should apply retrospectively. However, the Tribunal noted that the explanatory memorandum to the Finance Act, 2021, explicitly states that the amendments take effect from 1st April 2021, applying to assessment year 2021-22 and subsequent years. Therefore, these amendments do not apply to the assessment year 2018-19 in question.

Conclusion:
The Tribunal concluded that the employees' contributions to ESI and PF, deposited before the due date of filing the return of income under Section 139(1), are allowable deductions. The Tribunal directed the deletion of the addition of ?9,61,543/- made by the CPC. The appeal of the assessee was allowed, and the order was pronounced in the open court on 11/11/2021.