2022 (5) TMI 267 - AT - Income Tax

Late deposit of PF and ESI employee s contribution - addition u/s 2(24)(x) read with Section 36(1)(va) - HELD THAT - Admitted facts of the present case are that the payments of PF ESI contribution relating employee s contribution are before the due date of filing of return of income U/s 139(1) of the Act. We have noted that the issue under consideration is covered by the decision of the Coordinate Bench in case of M/s Mohanlal Khatri 2021 (11) TMI 1035 - ITAT JAIPUR . It is clear that there are series of decisions of various Hon ble High Courts on this issue and even Hon ble Jurisdictional High Court in the case of M/s. Industrial Security Intelligence India P Ltd. 2015 (7) TMI 1063 - MADRAS HIGH COURT held that the payment of employees contribution in regard to PF ESI if made before the due date of filing of return of income u/s.139(1) of the Act, the same is allowable as deduction as per the provisions of Section 2(24)(x) r.w.s. 36(1)(va) r.w.s. 43B. Scope of amendment - We are of the view that the amendment brought in the statue i.e., by Finance Act, 2021, the provisions of Section 36(1)(va) r.w.s. 43B of the Act amended by inserting explanation 2 is prospective and not retrospective. Hence, the amended provisions of Section 43B r.w.s. 36(1)(va) of the Act are not applicable for the assessment year under consideration i.e. 2018-19 but will apply from assessment year 2021-22 and subsequent assessment years. Hence, this issue raised in assessee s appeal is allowed.

Summary

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Disallowance of delayed payment of Employee's share of EPF/ESI under Section 36(1)(va) of the Income Tax Act.
3. Retrospective application of Explanation 2 to clause (va) of Section 36(1).

Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:
The assessee filed an appeal with a delay of 12 days. The delay was attributed to the discontinuation of the official email ID and the partners being engaged in different businesses. The assessee's legal counsel was informed about the CIT(A)'s order only on 09.11.2021, and despite depositing the appeal fees within the stipulated time, the appeal was delayed due to oversight and preoccupation with outstation work. The Revenue had no objection to the condonation of delay. The Tribunal found merit in the assessee's explanation and condoned the delay.

2. Disallowance of Delayed Payment of Employee's Share of EPF/ESI:
The assessee's primary grievance was the disallowance of Rs. 2,06,688/- due to delayed payment of Employee's share of EPF/ESI under Section 36(1)(va) of the Income Tax Act. 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 CIT(A) upheld the disallowance, stating that the adjustment made by the AO was correct as the payments were not made within the "due date" prescribed under the respective statutes.

3. Retrospective Application of Explanation 2 to Clause (va) of Section 36(1):
The assessee argued that the amendment introduced by the Finance Act, 2021, which added Explanation 2 to Section 36(1)(va), should not be applied retrospectively. The Tribunal referred to several judicial precedents, including decisions from the Hon'ble Supreme Court and various High Courts, which held that payments made before the due date of filing the return of income should not be disallowed. The Tribunal also noted that the amendment was intended to be prospective, applicable from the assessment year 2021-22 onwards, as clarified by the memorandum explaining the provisions of the Finance Bill, 2021.

Conclusion:
The Tribunal concluded that the amendment brought by the Finance Act, 2021, is prospective and not retrospective. Therefore, the disallowance of Rs. 2,06,688/- for the assessment year 2018-19 was not justified. The Tribunal allowed the assessee's appeal, deleting the disallowance made by the AO and upheld by the CIT(A).

Order:
The appeal of the assessee was allowed, and the order was pronounced in the open court on 06/04/2022.