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2022 (5) TMI 742 - AT - Income TaxDelayed payment of employee's contribution, beyond the prescribed time, to the welfare Funds like PF - Scope of amendment - contribution paid before the due date of filing of return of income u/s. 139(1) - HELD THAT - The employees' contribution of ESI and PF had been deposited before the due date of filing of return u/s. 139(1) of the Act is not in dispute. It is seen that the said issue, as far as the present Forum is concerned, stands fully covered in favour of the assessees not only by the consistent orders of the various Benches of the ITAT across the country but also by the consistent orders of the Chandigarh Bench of the ITAT. It is seen that all along, the Co-ordinate Benches have held that the amendments to Sections 36(1)(va) and u/s. 43B of the Income Tax Act effected by the Finance Act, 2021 are applicable prospectively and not retrospectively. While coming to the said conclusion, the Benches have relied upon the Notes on Clauses at the time of introduction of the Finance Act, 2021 and have held that the amendment is applicable in relation to the assessment year 2021-22 and subsequent years and not retrospectively. Thus, in view of this legal position, as considered by the Co-ordinate Benches and duly taking note of the judgements of the jurisdictional High Court in the case of CIT Vs Nuchem Limited. 2010 (2) TMI 959 - PUNJAB AND HARYANA HIGH COURT we are of the view that the additions cannot be made or sustained on the strength of the amendment effected by Finance Act, 2021 to Sections 36(1)(va)/43B of the Act as the legal position thereon is very clear. The departmental stand that it is clarificatory in nature has consistently been rejected. Thus, in the face of the clear legal position, we find that the claim of the assessee is to be allowed. We are bound by the law laid down by the Hon'ble Punjab and Haryana High Court in the case of CIT Vs. Hemla Embroidery Mills (P) Ltd. 2013 (2) TMI 41 - PUNJAB AND HARYANA HIGH COURT wherein it was categorically held that the respondent - assessee was entitled to deduction in respect of employer and employee's contribution to ESI and Provident Fund as the same had been deposited prior to the filing of the return u/s. 139(1) - Decided in favour of assessee.
Issues Involved:
1. Whether the delayed payment of employees’ contribution to Provident Fund (PF) and Employee State Insurance (ESI) beyond the due date prescribed under respective statutes but before the due date of filing the return of income under section 139(1) of the Income Tax Act, 1961, is an allowable deduction. Issue-wise Detailed Analysis: 1. Delayed Payment of Employees' Contribution to PF and ESI: The central issue in these appeals is whether the delayed payment of employees' contribution to PF and ESI, beyond the prescribed due date under respective statutes but before the due date of filing the return of income under section 139(1) of the Income Tax Act, 1961, is allowable as a deduction. Arguments by the Department: - The Department contended that according to Section 36(1)(va) of the Income Tax Act, the deduction for employees' contribution to PF and ESI is only allowable if the payment is made within the due date prescribed under the respective statutes. - The Department emphasized the distinction between the provisions of Section 36(1)(va) and Section 43B of the Income Tax Act, highlighting that while the delayed payment of the employer’s contribution is allowable if paid before the filing of the return, the employees' contribution is disallowed if not paid within the prescribed time. - Reference was made to the amendments introduced by the Finance Act, 2021, which inserted Explanation 1 and Explanation 2 to Section 36(1)(va) and Explanation 5 to Section 43B, clarifying that the provisions of Section 43B do not apply to employees' contributions. - The Department relied on several judgments, including CIT v. Bharat Hotels Ltd. and CIT v. Gujarat State Road Transport Corporation, to support their contention that the provisions are clear and unambiguous and should be applied as such. Arguments by the Assessees: - The Assessees argued that the employees' contribution to PF and ESI, though paid beyond the due date under the respective statutes, was deposited before the due date of filing the return of income under section 139(1) of the Act, and therefore, should be allowed as a deduction. - They cited numerous judicial precedents, including decisions from the Hon'ble Punjab & Haryana High Court, Karnataka High Court, Delhi High Court, Rajasthan High Court, Patna High Court, Allahabad High Court, and Gauhati High Court, which have consistently ruled in favor of the assessees on this issue. - The Assessees also referred to various orders of the ITAT, Chandigarh Bench, which have allowed the deduction for employees' contribution to PF and ESI if paid before the due date of filing the return under section 139(1) of the Act. Tribunal's Findings: - The Tribunal noted that the fact that the employees' contribution to PF and ESI was deposited before the due date of filing the return under section 139(1) of the Act was not in dispute. - It was observed that the issue is fully covered in favor of the assessees by consistent orders of various Benches of the ITAT across the country and by the jurisdictional High Court, i.e., the Hon'ble Punjab & Haryana High Court. - The Tribunal referred to the judgments of the Hon'ble Punjab & Haryana High Court in CIT vs. Nuchem Limited and CIT vs. Hemla Embroidery Mills Pvt. Ltd., which categorically held that the deduction is allowable if the payment is made before the due date of filing the return. - The Tribunal also noted that the amendments introduced by the Finance Act, 2021, to Sections 36(1)(va) and 43B are applicable prospectively and not retrospectively, as clarified in the Notes on Clauses at the time of introduction of the Finance Act, 2021. - The Tribunal concluded that the additions made by the Department could not be sustained based on the amendments effected by the Finance Act, 2021, as the legal position is clear that the amendments are prospective. Conclusion: - The Tribunal dismissed the appeals of the Department and allowed the appeals of the assessees, holding that the employees' contribution to PF and ESI, if paid before the due date of filing the return under section 139(1) of the Act, is an allowable deduction. - The Tribunal also allowed the Cross Objection, which was supportive in nature. Order Pronounced: - The appeals of the Department bearing ITA Nos. 18/Chd/2022 and 418/Chd/2021 are dismissed. - The appeals of the assessees bearing ITA Nos. 09/Chd/2022, 12/Chd/2022, 31/Chd/2022, 32/Chd/2022, 394/Chd/2021, 14 & 15/Chd/2022, 78/Chd/2022, and 16/Chd/2022 are allowed. - The Cross Objection No. 01/Chd/2022 is allowed. Order Pronounced on 21st April, 2022.
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