2022 (4) TMI 155 - AT - Income Tax

Disallowance of expenditure incurred towards payment made for employees contribution to PF ESI - amount remitted in the Government Treasury within the due date of filing the income tax return - HELD THAT - In the case of the assessee it is not disputed that the amount of employee s contribution was deducted by the assessee and remitted in the Government Treasury within the due date of filing their returns of income under the Income Tax Act 1961. Since the cases of the assessee relate to assessment years 2018-19 2019-20 and the amendment though clarificatory in nature has come into effect from 1/4/2021 for the relevant year under consideration it would suffice that the employee s contribution deducted by the assessee is remitted in the Government Treasury within the due date of filing of the return of income as prescribed under the Act. Therefore the disallowance made by the Ld. Revenue Authorities is deserved to be deleted. Hence we hereby direct the AO to delete the addition made in the hands of the assessee under appeal towards disallowance of payment made in regard to the employee s contribution to PF ESI fund. Appeal of assessee allowed.

Summary

Issues:
Disallowance of expenditure incurred towards payment made for employees' contribution to PF & ESI fund.

Analysis:
The Appellate Tribunal ITAT Visakhapatnam heard multiple appeals filed by different assessees against the orders of the ld. CIT(A), National Faceless Appeal Centre (NFAC), Delhi. The appeals were clubbed together due to the similarity of the issue raised by the assessees. The primary issue in all the appeals was the disallowance of expenditure incurred towards employees' contribution to PF & ESI fund, despite the contributions being remitted in the Government Treasury within the due date of filing income tax returns.

In one of the cases where no one appeared on behalf of the assessee, the Tribunal proceeded to adjudicate the case on merits considering the covered nature of the issue. The Tribunal referred to the Memorandum Explaining the Provisions in Finance Bill, 2021, which clarified the provisions related to the due date for crediting employee contributions to relevant funds. The Memorandum highlighted the distinction between employer and employee contributions and emphasized the penalization of employers misusing employee contributions.

The Tribunal noted that the amendment to section 36(1)(va) and section 43B of the Income Tax Act, effective from 1st April 2021, clarified that the provisions of section 43B do not apply to employee contributions. Since the cases under consideration were for assessment years 2018-19 & 2019-20, predating the amendment, the Tribunal held that as long as the employee contributions were remitted in the Government Treasury by the due date for filing income tax returns, the disallowance made by the Revenue Authorities was unwarranted.

Consequently, the Tribunal directed the Assessing Officer to delete the additions made towards the disallowance of payments made for employees' contribution to PF & ESI fund in the hands of the assessees. As a result, all the appeals of the assessees were allowed, and the decision was pronounced in the open court on 17th March 2022.