2022 (4) TMI 36 - AT - Income Tax

Disallowance relating to PF ESIC contribution - addition u/s 36(1)(va) r.w.s.2(24)(x) - scope of applicability of the amendments that have been made available on the statue vide the Finance Act, 2021, i.e, Explanation 5 to Section 43B and Explanation 2 to Section 36(1)(va) - HELD THAT - We are of the considered view, that as the amendments made available on the statue vide the Finance Act, 2021 i.e Explanation 5 to Section 43B and Explanation 2 to Section 36(1)(va) are applicable w.e.f 01.04.2021, i.e, from A.Y 2021-22 onwards, therefore, the same would not have any bearing on the case of the assessee before us, i.e, for A.Y 2011-12. Accordingly, we, herein conclude, that as the employees contributions to PF and ESI was deposited by the assessee before the due date of filing of its return of income for the year under consideration, therefore, the same being saved by the provisions of Sec. 43B of the Act could not have been disallowed by the A.O. We, thus, in the backdrop of our aforesaid deliberations set-aside the order of the CIT(A) and vacate the disallowance made by the A.O. Ground of appeal No. 1 is allowed in favour of assessee. Inadmissible expenses u/s 14A r.w.r.8D - HELD THAT - We are unable to persuade ourselves to subscribe to the disallowance worked out by the Assessing Officer u/s.14A of the Act, i.e, de-hors any exempt dividend income having been earned by the assessee during the year under consideration. We, thus, direct the Assessing Officer to vacate the disallowance made by him u/s.14A r.w.r 8D. Thus, the Ground of appeal No.2 raised in appeal by the assessee is allowed

Summary

Issues Involved:
1. Disallowance of PF & ESIC contribution under sec.2(24)(x) of Income Tax Act, 1961.
2. Addition of inadmissible expenses u/s14A r.w.r.8D.

Analysis:

Issue 1: Disallowance of PF & ESIC Contribution
The controversy revolves around the disallowance of the assessee's claim for deduction of employees' contribution towards PF & ESIC. The Assessing Officer disallowed the amount under section 36(1)(va) r.w.s.2(24)(x) of the Act due to a delay in depositing the contribution. The assessee argued that the contributions were made before the due date of filing the return, making them eligible for deduction under Sec. 43B of the Act. The Tribunal referred to the judgment in CIT Vs. Hindustan Organic Chemicals Ltd and various High Court decisions supporting the deduction of employees' PF and ESI contributions under Sec. 43B. The Tribunal concluded that no distinction should be made between employers' and employees' contributions, thus allowing the appeal and vacating the disallowance.

Issue 2: Addition of Inadmissible Expenses
The Assessing Officer made an addition of inadmissible expenses under section 14A r.w.r.8D. The assessee contended that as no exempt dividend income was earned during the relevant year, the disallowance under section 14A was unjustified. The Tribunal agreed with the assessee, citing judicial pronouncements like Cheminvest Ltd. Vs. CIT and Pr. CIT Vs. Karnataka State Financial Corporation Ltd., emphasizing that without exempt income, no disallowance under section 14A could be made. The Tribunal directed the Assessing Officer to vacate the disallowance, allowing the appeal on this ground.

Applicability of Amendments
The Tribunal addressed the applicability of amendments introduced by the Finance Act, 2021, specifically "Explanation 5" to Section 43B and "Explanation 2" to Section 36(1)(va). Referring to the decision in Vinko Auto Industries Ltd. Vs. DCIT, the Tribunal clarified that these amendments are applicable prospectively from A.Y 2021-22 onwards. Therefore, for the assessment year 2011-12, the amendments had no impact on the case, and the employees' contributions to PF and ESI were allowed as deductions.

In conclusion, the Tribunal allowed the appeal of the assessee, setting aside the disallowances made by the Assessing Officer and the CIT(A). The order was pronounced on 30th March 2022 by the Tribunal comprising Shri Ravish Sood, Judicial Member, and Shri Jamlappa D Battull, Accountant Member.