2022 (6) TMI 880 - AT - Income Tax

Addition on account of employees' contribution to ESI EPF paid belatedly but before the due date of filing of the return of income under section 139(1) - HELD THAT - As there is a delay in payment of employees' contribution towards PF ESI as per the limitation prescribed under the Specific Acts however, the payment was made before the due date of filing of the return under section 139(1) of the Income Tax Act. I further note that the issue of retrospective applicability of the amendments made by Finance Act, 2021 in section 36(1)(va) and section 43-B has been considered by this Tribunal in a series of decisions and following those decisions, the Tribunal in the case of Lavkush Sharma vs. ACIT 2021 (12) TMI 1331 - ITAT ALLAHABAD prior to the amendment by Finance Act, 2021 in Section 36(1)(va), Section 43B, the issue of allowability of the employee s contribution deposited belatedly as per the due date of the respective Acts however, before the due of filling of return of income under Section 139(1) is covered by the decisions of Hon'ble jurisdictional High Court as well other High Courts. Employee s contribution towards EPF and ESI was deposited by the assessee before the due date of return of income u/s 139(1) which was extended by the CBDT upto 31st October, 2018. Therefore, the claim of assessee is allowed.

Issues Involved:
1. Sustaining the addition of Rs. 27,90,788/- under section 143(1) of the Income Tax Act, 1961 on account of employee's contribution to PF and ESI.
2. Applicability of section 143(1)(a) for adjustments.
3. Timeliness of the deposit of employee's contribution to PF and ESI under section 139(1).
4. Prospective or retrospective effect of the amendment by Finance Act, 2021.
5. Levy of interest under section 234B.
6. Compliance with principles of natural justice.

Analysis:

1. Sustaining the Addition of Rs. 27,90,788/-:
The primary issue revolves around whether the Commissioner of Income Tax (Appeals) [CIT(A)] was justified in confirming the disallowance made by the Assessing Officer (AO) for the belated payment of employees' contributions to PF and ESI, even though the payments were made before the due date for filing the return of income under section 139(1) of the Income Tax Act.

2. Applicability of Section 143(1)(a):
The appellant argued that the addition of Rs. 27,90,788/- does not fall under the purview of 'adjustment' as per the provisions of section 143(1)(a) of the Income Tax Act. The Tribunal considered the relevant material and previous judgments, concluding that such adjustments were indeed permissible under the cited section.

3. Timeliness of Deposit Under Section 139(1):
The appellant claimed that the employee's contribution to PF and ESI was deposited before the due date for filing the return of income under section 139(1). The Tribunal noted that several High Courts, including the jurisdictional High Court of Allahabad, have ruled in favor of the assessee in similar cases, allowing deductions if the contributions were deposited before the due date of filing the return, despite being delayed under the respective Acts.

4. Prospective or Retrospective Effect of Finance Act, 2021:
The Finance Act, 2021 introduced amendments to sections 36(1)(va) and 43B, clarifying that the provisions of section 43B do not apply to employee contributions. The Tribunal observed that although these amendments were intended to clarify the law, the Memorandum to the Finance Bill, 2021, explicitly states that these amendments are effective from April 1, 2021, and apply to assessment year 2021-22 and subsequent years. Consequently, the amendments were deemed not to have retrospective effect.

5. Levy of Interest Under Section 234B:
The appellant denied the levy of interest under section 234B of the Income Tax Act. However, the Tribunal did not provide a specific ruling on this issue, focusing primarily on the disallowance of the employee's contribution to PF and ESI.

6. Compliance with Principles of Natural Justice:
The appellant contended that the order was contrary to the principles of natural justice. The Tribunal, after considering the rival submissions and the relevant material on record, found that the procedural fairness was maintained, and the appellant was given adequate opportunity to present their case.

Conclusion:
The Tribunal allowed the appeal in favor of the assessee, directing the AO to verify the challans evidencing the deposit of the employee's contribution to PF/ESI before the due date prescribed for filing the return of income under section 139(1). The Tribunal's decision was consistent with the jurisdictional High Court's ruling in similar cases, ensuring the deduction under section 36(1)(va) was allowed if the contributions were deposited before the due date for filing the return of income, despite being delayed under the respective Acts. The amendments by the Finance Act, 2021, were held to be prospective and not applicable to the assessment year in question.

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