2022 (6) TMI 729 - AT - Income Tax

Delayed payment of employee's contribution, beyond the prescribed time, to the welfare Funds like PF - HELD THAT - As on a consideration of the peculiar facts, where admittedly the assessee is found to have deposited the employees' contribution to ESI/PF well before filing of the return of income, accordingly, considering the legal position as thrashed out in various decisions of the Co-ordinate Benches, the appeal of the Revenue is dismissed.

Issues Involved:

1. Deletion of addition/disallowance of Rs. 3,59,128/- for delayed payment of employee's contribution to welfare funds (PF).
2. Distinction between provisions of sections 36(1)(v) r.w.s. 43B and 36(1)(va) r.w.s. 2(24)(x) of the Income Tax Act, 1961.
3. Consideration of amendments by Finance Act, 2021 to Section 36(1)(va) and 43B.
4. Relevance of Circular No. 22/2015 issued by the CBDT.

Detailed Analysis:

1. Deletion of Addition/Disallowance of Rs. 3,59,128/-:

The Revenue challenged the deletion of the addition/disallowance of Rs. 3,59,128/- made by the Assessing Officer due to the delayed payment of the employee's contribution to welfare funds like PF. The CIT(A) had deleted this addition, which was contested by the Revenue. The Tribunal noted that the assessee had deposited the employees' contribution to ESI/PF well before the filing of the return of income. Consistently, various decisions of the ITAT and other courts have held that such contributions, if deposited before the filing of the return, should not be disallowed. Therefore, the Tribunal dismissed the Revenue's appeal.

2. Distinction Between Provisions of Sections 36(1)(v) r.w.s. 43B and 36(1)(va) r.w.s. 2(24)(x):

The Revenue argued that the CIT(A) ignored the distinction between the provisions of section 36(1)(v) r.w.s. 43B and section 36(1)(va) r.w.s. 2(24)(x). The former allows the delayed payment of the employer's contribution if paid before the filing of the return, while the latter disallows the employee's contribution if payment is delayed beyond the prescribed time. The Tribunal, however, reiterated that the amendments to these sections by Finance Act, 2021 are prospective and applicable from the assessment year 2020-21 onwards. Therefore, for the assessment year 2018-19, the contributions paid before the filing of the return should be allowed.

3. Consideration of Amendments by Finance Act, 2021:

The Revenue contended that the CIT(A) failed to consider the amendments made by the Finance Act, 2021, which inserted Explanation 1 & 2 below section 36(1)(va). These amendments were interpreted by the ITAT Delhi Bench as clarificatory. However, the Tribunal noted that the amendments were prospective and applicable from the assessment year 2020-21. The Tribunal consistently held that for the assessment year 2018-19, the amendments do not apply, and thus, the contributions paid before the filing of the return should not be disallowed.

4. Relevance of Circular No. 22/2015 Issued by the CBDT:

The Revenue also argued that the CIT(A) ignored Circular No. 22/2015 issued by the CBDT, which clarifies the position regarding the delayed payment of the employee's contribution covered under section 36(1)(va). The Tribunal noted that the tax effect in this case was below the limit prescribed by Circular No. 17/2019, but the case fell under the exception provided in para 10(b) of Circular No. 03/2018. The Tribunal reiterated that various decisions have consistently held that the amendments by Finance Act, 2021 are prospective and do not apply to the assessment year 2018-19. Therefore, the disallowance based on Circular No. 22/2015 was not sustainable.

Conclusion:

The Tribunal dismissed the Revenue's appeal, holding that the disallowance of Rs. 3,59,128/- for delayed payment of the employee's contribution to welfare funds was not sustainable as the contributions were deposited before the filing of the return of income. The amendments by Finance Act, 2021 were held to be prospective and applicable from the assessment year 2020-21. The Tribunal also noted that Circular No. 22/2015 did not alter the legal position for the assessment year 2018-19. The appeal of the Revenue was dismissed, and the order was pronounced in the Open Court on 23rd May, 2022.

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