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2022 (5) TMI 826 - AT - Income TaxBelated payment of employees contribution to ESI and PF - Scope of amendment - HELD THAT - As amendment brought in by Finance Act 2021 is effective from 1.04.2021 and no disallowance is called for on belated payment of employees contribution to ESI and PF in case the assessee deposited the said contribution before due date for filing of return of income under Income Tax Act. See RAJ KUMAR 2022 (2) TMI 1224 - ITAT DELHI - Decided in favour of assessee.
Issues Involved:
1. Disallowance of Employees' Contribution to Provident Fund (PF) and Employees State Insurance (ESI) under Section 36(1)(va) due to delayed payment. 2. Applicability of amendments brought by Finance Act, 2021 to pending cases. 3. Interpretation of relevant sections and explanations under the Income Tax Act, particularly Sections 36(1)(va), 43B, and 2(24)(x). Detailed Analysis: Issue 1: Disallowance of Employees' Contribution to PF and ESI under Section 36(1)(va) due to delayed payment The Assessee's appeal concerns the disallowance of Rs. 1,57,994/- and Rs. 89,899/- for delayed payment of employees' contributions to PF and ESI, respectively. The Deputy Commissioner of Income Tax, CPC, Bangaluru, while processing the return under Section 143(1), disallowed these contributions, which was sustained by the Commissioner of Income Tax (Appeals), NFAC, Delhi. The disallowance was based on the insertion of Explanations to Section 36(1)(va) and 43B, clarifying that the deduction for employees' contributions is only allowable if deposited before the due date as per the respective Acts. Issue 2: Applicability of amendments brought by Finance Act, 2021 to pending cases The Tribunal observed that the amendment brought by Finance Act, 2021, effective from 01.04.2021, clarified that the provisions of Section 43B do not apply to employees' contributions. The Tribunal, in recent cases, held that no disallowance is called for if the contributions are deposited before the due date for filing the return under the Income Tax Act, even if paid after the due date prescribed under the relevant Acts. Issue 3: Interpretation of relevant sections and explanations under the Income Tax Act The Tribunal relied on various judicial precedents, including the Jurisdictional High Court's decision in CIT vs. AIMIL Limited (310 ITR 508), which held that if employees' contributions are deposited before the filing of the return, no disallowance is warranted. The Tribunal also referred to the decision in CIT Vs. Bharat Hotels Ltd. (410 ITR 417), which allowed deductions for contributions deposited within the grace period. Additionally, the Tribunal cited the Hon'ble Supreme Court's ruling in CIT Vs. Vinay Cement Ltd. (213 CTR 268), affirming that contributions paid before the due date of filing the return are allowable. The Tribunal also reviewed the Finance Act, 2021, which introduced clarificatory amendments to Section 36(1)(va) and Section 43B, specifying that Section 43B does not apply to employees' contributions. The Memorandum Explaining the Provisions in the Finance Bill, 2021, highlighted the distinction between employers' and employees' contributions, emphasizing that employees' contributions are to be deposited by the employer in a fiduciary capacity. Conclusion: The Tribunal concluded that no disallowance is warranted for the belated payment of employees' contributions to PF and ESI if deposited before the due date of filing the return. The appeal filed by the Assessee was allowed, and the Assessing Officer/CPC was directed to delete the disallowance. The decision was pronounced in the open court on 27/04/2022.
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