2022 (3) TMI 970 - AT - Income Tax

Delayed Employees contribution to provident fund and employees state insurance, u/s. 36(1)(va) - HELD THAT - The question whether the payments made beyond the due date prescribed under respective statutes, but before the due date prescribed u/s. 139(1) of the Income tax Act was considered and decided in favour of the assessee in the case of M/s. Shakuntala Agarbathi Company 2021 (10) TMI 1196 - ITAT BANGALORE held that the assessee would be entitled to deduction of employees' contribution to PF and ESI provided that the payments were made prior to the due date of filing of the return of income u/s. 139(1) of the I.T. Act. Also the amended provisions of section 43B as well as 36(1)(va) of the I.T. Act are not applicable for the assessment year under consideration. By following the binding decision of the Hon'ble jurisdictional High Court in the case of Essae Teraoka Pvt. Ltd. 2014 (3) TMI 386 - KARNATAKA HIGH COURT the employees' contribution paid by the assessee before the due date of filing of return of income u/s. 139(1) is an allowable deduction. Accordingly, we decide this issue in favour of the assessee and the disallowance made by the Assessing Officer is deleted. - Decided in favour of assessee.

Summary

Issues:
Challenge to disallowance of employees' contribution to provident fund and employees state insurance under section 36(1)(va) of the Income-tax Act, 1961 for the assessment year 2019-20.

Analysis:
The appellant contested the disallowance of ?4,07,792 as employees' contribution to PF and ESI made beyond prescribed due dates. The appellant argued that payments were made before the due date for filing returns under section 139(1) of the Act. The CIT(A) upheld the disallowance citing the Finance Act, 2021 amendments to sections 43B and 36(1)(va) and previous tribunal decisions. The appellant relied on the Karnataka High Court's decision in Essae Teraoka Pvt. Ltd. case. The ITAT noted the appellant's timely remittance of payments as per the tax audit report for AY 2019-20.

The ITAT referred to the Shakuntala Agarbathi Company case where the tribunal ruled in favor of the assessee based on the Essae Teraoka Pvt. Ltd. judgment. The ITAT held that the Finance Act, 2021 amendments were not clarificatory. The ITAT emphasized that deductions for employees' contributions to PF and ESI were permissible if paid before the due date for filing returns under section 139(1) of the Act. The ITAT highlighted the High Court's stance on the term "contribution" and rejected the Gujarat High Court's view, aligning with the Karnataka High Court's decision.

Regarding the Finance Act, 2021 amendments, the ITAT cited the M.M. Aqua Technologies Limited case, stating that the amendments altered the law adversely to the assessee. The ITAT referenced various tribunal orders affirming the prospective nature of the amendments. Consequently, the ITAT held that the amendments did not apply to AY 2019-20, directing the AO to allow the deduction for employees' contributions to ESI. The ITAT concluded that the amended provisions of sections 43B and 36(1)(va) were not applicable for the assessment year under consideration.

The ITAT acknowledged the contrary view of the Gujarat High Court in the Gujarat Road Transport Corpn. case, pending before the Supreme Court. The ITAT allowed the appeal, granting relief to the assessee. The ITAT permitted the revenue to seek rectification if the Supreme Court ruled in favor of the revenue. The appeal filed by the assessee was allowed, pronouncing the order on 14th March 2022.