2022 (5) TMI 504 - AT - Income Tax

Disallowance of payment of employees contribution towards Provident Fund and ESI under section 36(1)(va) read with section 43B - scope of amendment - HELD THAT - This issue stands covered by series of decisions of this Tribunal following various judgments of Hon'ble High Courts including Delhi High Court that, if the payment of employees contribution to PF/ESI though has been made beyond the amendment of statutory date but much before filing of return of income, then no disallowance can be made. See FLYING FABRICATION VERSUS DEPUTY COMMISSIONER OF INCOME TAX 2021 (11) TMI 1041 - ITAT DELHI Amendment regarding due date of deposit of employees contribution of PF/ESI are prospective, i.e., beyond AY 2021-22 and the same is allowed if it is paid before the due date of filing of Income-tax return prior to AY 2021-22 and same cannot be disallowed u/s 36(1)(va) - See RAJ KUMAR VERSUS ITD, CPC, BENGALURU KARNATAKA 2022 (2) TMI 1224 - ITAT DELHI - Decided in favour of assessee.

Summary

Issues: Challenge to disallowance of payment of employees' contribution towards Provident Fund and ESI under section 36(1)(va) read with section 43B of the Income-tax Act, 1961.

Analysis:
1. The appeal was filed against the order passed by the National Faceless Appeal Centre (NFAC), Delhi for the Assessment Year 2018-19, regarding the disallowance of payment of employees' contribution towards Provident Fund and ESI under section 36(1)(va) read with section 43B of the Income-tax Act, 1961.

2. The NFAC upheld the disallowance, citing the retrospective nature of the amendment brought in by the Finance Act, 2021, which was considered clarificatory. The Tribunal referred to various judgments, including the case of Flying Fabrication vs. DCIT, to support the position that if the payment of employees' contribution to PF/ESI was made before the due date of filing the return of income, no disallowance could be made.

3. The Tribunal highlighted that the amendment brought about by the Finance Act, 2021, was retrospective in nature. It was emphasized that the employer could make the deposit with some delays, subject to interest and penalties as per the Provident Fund Act and the ESI Act. The Tribunal relied on the principle laid down by the Supreme Court in Vinay Cement to support the assessee's claim.

4. Referring to various judgments of the Hon'ble Jurisdictional High Court, the Tribunal reiterated that no disallowance could be made for the payment of employees' contribution to PF and ESI made before the due date of filing the return of income. The Tribunal dismissed the Revenue's appeals and allowed those filed by the assessees.

5. In a subsequent judgment, the Tribunal held that the amendment regarding the due date of deposit of employees' contribution to PF/ESI was prospective beyond AY 2021-22. The Tribunal emphasized that if the payment was made before the due date of filing the Income-tax return before AY 2021-22, it could not be disallowed under section 36(1)(va).

6. Consequently, the disallowance sustained by the CIT (A) was directed to be deleted, and the appeal filed by the assessee was allowed. The order was pronounced on April 21, 2022.