2022 (3) TMI 1069 - AT - Income Tax

Addition u/s 36 - late payment of ESI/PF - actual ESI and EPF payments were made before the due date of filing the ITR - HELD THAT - CIT(A) has referred to the amendment brought in by the Finance Act, 2021 wherein an explanation has been introduced to Sections 36(1)(va) and u/s. 43B of the Income Tax Act. It is a consistent position across various Benches of the Tribunal including Chandigarh Benches 2021 (11) TMI 1017 - ITAT CHANDIGARH 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 2019-20, the said amendment cannot be applied in the instant case. Therefore 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 of the Act, is hereby directed to be deleted. - Decided in favour of assessee.

Summary

Issues:
- Disallowance under section 36 for late payment of ESI/PF contributions.
- Applicability of the amendment brought by the Finance Act, 2021 to Sections 36(1)(va) and 43B of the Income Tax Act.

Analysis:

Issue 1: Disallowance under section 36 for late payment of ESI/PF contributions:
The appeal was filed against the order of the Learned Commissioner of Income Tax (Appeals) regarding the addition of a specific amount under section 36. The disallowance was initially made by the Central Processing Centre for late payment of ESI/PF contributions. The assessee contended that the payments were made before the due date of filing the return of income under section 139(1) of the Act. The assessee relied on various judicial pronouncements in support of their argument. The National Faceless Appeal Centre rejected the plea of the assessee, leading to the appeal before the ITAT. During the hearing, it was emphasized that the contributions were deposited before the due date of filing the return, and thus, no disallowance under section 36(1)(va) could be made. The ITAT, considering the legal position and precedents, directed the deletion of the disallowance.

Issue 2: Applicability of the amendment by the Finance Act, 2021:
The amendment introduced by the Finance Act, 2021 to Sections 36(1)(va) and 43B was a crucial aspect of the case. The amendment was cited to support the disallowance made by the lower authorities. The Department argued that the amendment clarified that employees' contributions must be paid within the prescribed due dates to be allowed as a deduction under section 36(1)(va). However, the ITAT, after considering the divergent views of various High Courts and the specific jurisdiction of the Punjab & Haryana High Court, held that the amendment would apply prospectively from assessment year 2021-22 onwards. Since the assessment year in question was 2019-20, the ITAT ruled that the amendment could not be applied in this case. Consequently, the addition made by the CPC towards the deposit of employees' contributions was directed to be deleted, and the appeal of the assessee was allowed.

In conclusion, the ITAT decision favored the assessee by allowing the appeal and directing the deletion of the disallowance under section 36. The judgment highlighted the importance of timely payment of ESI/PF contributions and the prospective application of the amendment introduced by the Finance Act, 2021 to Sections 36(1)(va) and 43B of the Income Tax Act.