2022 (5) TMI 1382 - AT - Income Tax

Disallowances of employment contribution towards EPF/ESIC - Scope of amendment - HELD THAT - As employees s contribution to ESI and PF which have been collected by the assessee from its employees have thus been deposited well before the due date of filing of return of income u/s 139(1) of the Act. Till this provision is enacted in as the due amounts on one pretext or the other were not being deposited by the assessee though substantial benefits had been obtained by them in the shape of the amount having been claimed as a deduction but the said amounts were not deposited. It is pertinent to note that the respective Act such as PF / ESIC etc. also provides that the amounts can be paid later on subject to payment of interest and other consequences and to get benefit under the Income Tax Act, an assessee ought to have actually deposited the entire amount as also to adduce evidence regarding such deposit on or before the return of income under sub-section (1) of Section 139 - where the PF and/or EPF, CPF, GPF etc., if paid after the due date under respective Act but before filing of the return of income under Section 139(1), cannot be disallowed under Section 43B or under Section 36(1)(va) of the IT Act. This view is rendered in CIT vs. Jaipur Vidyut Vitran Nigam Ltd. 2014 (1) TMI 1085 - RAJASTHAN HIGH COURT , CIT vs. Udaipur Dugdh Utpadak Sahakari Sangh Ltd. 2014 (8) TMI 677 - RAJASTHAN HIGH COURT , and CIT vs Rajasthan State Beverages Corportation Limited. 2016 (8) TMI 1317 - RAJASTHAN HIGH COURT - In all these decisions, it has been consistently held that where the PF and ESI dues are paid after the due date under the respective statues but before filing of the return of income under section 139(1), the same cannot be disallowed under section 43B read with section 36(1)(va) of the Act. We further note that though the ld. CIT(A) has not disputed the facts of the case that the amount has been deposited by the assessee before the due date of filling return of income but has followed the decision of Hon ble Gujarat HC in the case of CIT-II Vs. Gujarat State Road Transport where in the HC held that amendment in section 43B vide Finance Act 2003 will apply only for employer s contribution. So far as employee s contribution is concerned it is not governed by section 43B but by section 2(24)(x) and 36(1)(va). Based on the above discussion and findings that the amendment is prospective and not retrospective and when there are two views on the issue one which is favourable to the assessee holds better footing. Therefore, based on the above findings we allow the claim of the assessee.

Summary

Issues:
Disallowance of employment contribution towards EPF/ESIC under section 36(1)(va) of the Income Tax Act.

Analysis:
The appeal was filed by the assessee against the order of the Commissioner of Income Tax (Appeal)- I, Raipur for the assessment year 2012-13. The assessee contended that the disallowance of Rs. 18,12,622 towards employment contribution was unjustified and unwarranted. The assessee argued that the contribution was deposited before the due date of filing the return of income, citing various judicial decisions in support of their claim.

During the hearing, the counsel for the revenue argued that the explanation added to Section 36(1)(va) by the Finance Act, 2021 should be considered, making the claim of the assessee not allowable. However, the assessee argued that the clarification would apply from the assessment year 2021-22 onwards and not to the impugned assessment year. The amendment aimed to clarify that the provision of section 43B does not apply to determine the "due date" under this clause.

The Tribunal noted that the employees' contributions to EPF and ESIC were deposited before the due date of filing the return of income. The Tribunal relied on various decisions of High Courts and Tribunal benches, holding that if the contributions are paid before the due date of filing the return of income, they cannot be disallowed under Section 43B or Section 36(1)(va) of the IT Act. The Tribunal emphasized that the amendment was prospective and not retrospective, and when there are two views on the issue, the one favorable to the assessee should be adopted.

Based on the findings and discussions, the Tribunal allowed the claim of the assessee for Rs. 18,12,622 towards employees' contribution towards EPF/ESIC and directed the Assessing Officer to delete the disallowance. The appeal of the assessee was allowed, and the order was pronounced in open court on 27th May 2022.