2022 (6) TMI 884 - AT - Income Tax

Delayed payment of employee's contribution towards EPF and ESI - Payment after due date as prescribed under the relevant Act/Rules in breach of Explanation 5 to Section 43B - case of assessee it has deposited the employee's contribution in EPF and ESI before the due date of filing of return of income stipulated under Section 139(1) - HELD THAT - . We find that the identical issue has been decided in favour of the assessee by the Hon'ble Delhi High Court in the case of Pr.CIT vs. Pro Interactive Service (India) Pvt. Ltd 2018 (9) TMI 2009 - DELHI HIGH COURT - we direct the Assessing Officer to allow the claim of the assessee and delete the addition. Hence, the grounds of appeal raised by the assessee are allowed. Scope of amendment - We also take note of the plea of the assessee that delayed payment of employee's contribution to PF/ESIC is not disallowable as the amendments to Section 36(1)(va) and Section 43B effected by Finance Act, 2021 were applicable prospectively in relation to Assessment Year 2021-22 and subsequent years. Therefore, the claim of deduction of contribution to Employee's State Insurance Scheme (ESI) and Provident Fund u/s. 36(1)(va) could not be denied to the assessee in Assessment Year 2017-18 in question on the basis of amendments made by Finance Act, 2021. For this proposition, we find support from the decision of the Co-ordinate Bench of Tribunal in the case of The Continental Restaurant and Cafe Company 2021 (10) TMI 843 - ITAT BANGALORE and Adyar Ananda Bhavan Sweets India P. Ltd. 2021 (12) TMI 558 - ITAT CHENNAI . Consequently, the action of revenue on this score is set aside and cancelled. Scope of processing the return of income under Section 143(1) - Co-ordinate Bench of the Tribunal in the case of Kalpesh Synthetics (P.) Ltd. vs. DCIT ( 2022 (5) TMI 461 - ITAT MUMBAI observed that scope of prima facie disallowance under Section 143 is inherently very limited and only such disallowance can be made under this statutory provision as can be conclusively held to be inadmissible based on material on record. The claim of the assessee for allowability of employee's contribution to PF/ESIC under Section 36(1)(va) r.w.s. 2(24)(x) of the Act is backed by binding judicial precedent of the Hon'ble Jurisdictional High Court and hence such adjustments under Section 143(1), at the minimum, cannot fall in this category. Hence on this score also, the adjustments towards employees contribution to PF/ESIC resulting in disallowance thereof is not permissible in law. Appeal of assessee allowed.

Summary

Issues:
Delay in filing appeal due to Covid-19 extension of limitation period. Disallowance of employee's contribution towards EPF and ESI. Interpretation of Section 36(1)(va) and Section 43B. Applicability of Finance Act, 2021 amendments. Scope of prima facie disallowance under Section 143(1).

Analysis:
1. The appeal was filed against the Commissioner of Income Tax (Appeals) order concerning the disallowance of Rs. 19,19,534 on account of delayed payment of employee's contribution towards EPF and ESI for AY 2019-20.

2. The delay in filing the appeal was condoned due to Covid-19, with the assessee challenging the disallowance based on compliance with payment obligations before the due date allowed under Section 139(1) of the Income Tax Act, citing relevant judicial pronouncements.

3. The Assessing Officer made the disallowance under Section 36(1)(va) read with Section 2(24)(x) of the Act, as the employee's contribution was deposited after the due date, invoking Explanation 5 to Section 43B.

4. The assessee contended that the payment towards EPF and ESI was made before the due date of filing the return of income, as supported by a judgment of the Hon'ble Delhi High Court in a similar case.

5. Following the binding precedents of the Hon'ble Delhi High Court, the Tribunal directed the Assessing Officer to allow the claim of the assessee and delete the addition, as belated payment of EPF and ESI contributions should not be treated as deemed income of the employer.

6. The Tribunal also held that the Finance Act, 2021 amendments were applicable prospectively from AY 2021-22 onwards, thereby setting aside the revenue's action in denying the deduction of contributions to ESIC and Provident Fund for AY 2017-18.

7. Additionally, the Tribunal emphasized that the prima facie disallowance under Section 143(1) is limited, and adjustments towards employee's contribution to PF/ESIC, backed by judicial precedent, cannot be conclusively held inadmissible based on the material on record.

8. Consequently, the appeal of the assessee was allowed, and the impugned addition was directed to be deleted, affirming the deductions claimed for employee's contributions to PF and ESIC.