2022 (6) TMI 1052 - AT - Income Tax

Disallowance of late payment of employee contribution to Provident Fund (PF) - payment after the due date as mentioned in relevant statute but before due date of filing return of income - assessee s claim disallowed in proceedings under section 143(1) - HELD THAT - The assessee in response to the notice issued under section 143(1)(a) had intimated the CPC, Bangalore that the issue is squarely covered in favour of the assessee by the decision of Hon ble Apex Court in the case of CIT Vs. Alom Extrusions Ltd. 2009 (11) TMI 27 - SUPREME COURT and the decision in the case of CIT Vs. Ghatge Patil Transport 2014 (10) TMI 402 - BOMBAY HIGH COURT . Despite that CPC disallowed assessee s claim under section 36(1)(va) of the Act. In First Appellate Proceedings, the CIT(A) upheld the order of CPC by placing reliance on the decision of non-jurisdictional High Court and referring to the provisions of section 36(1)(va) as amended by the Finance Act, 2021. It is relevant to mention here that the CIT(A) in the impugned order has mentioned the fact that there are judgments in favour of the assessee and the Revenue. Though, the issue has been settled by the Hon ble Apex Court, still some of the High Courts have taken a contrary view, this make the issue debatable. It is a well settled legal position that no disallowance can be made under section 143(1) of the Act, where the issue is debatable. Thus assessee would be eligible for claiming deduction in respect of delayed payment (as per respective Act) of PF of employees contribution, if paid before due date of filing return of income. Therefore, the reason given by CIT(A) to disallow the claim of assessee is unsustainable. In so far as applicability of Explanation (2) to section 36(1)(va) inserted by the Finance Act, 2021, the same is effect from 01.04.2021. The Memorandum Explaining the provisions in Finance Bill, 2021 has in an unambiguous manner has expressed that the amendment will take effect from 01.04.2021 and will apply to the AY 2021-22 and subsequent AYs. Thus, in light of above, we hold that the CIT(A) has erred in applying amended provisions of section 36(1)(va) to disallow assessee s claim of deduction of PF. - Decided in favour of assessee.

Summary

Issues Involved:
Disallowance of late payment of employee contribution to Provident Fund (PF) under section 36(1)(va) of the Income Tax Act, 1961 for Assessment Year 2019-20.

Detailed Analysis:

Issue 1: Disallowance of late PF payment
The appellant raised five grounds challenging the disallowance of late payment of PF. The appellant argued that the PF payments were made before the due date of filing the income tax return, hence no disallowance should occur under section 36(1)(va) of the Act. The appellant cited relevant case laws to support their position. However, the Central Processing Centre (CPC) disallowed the claim, leading to the appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A) upheld the disallowance by relying on a decision regarding the non-allowability of employee contributions to PF/ESIC if not paid within the statutory due date. The CIT(A) also referred to the amendment made by the Finance Act, 2021 to section 36(1)(va) to support the disallowance.

Issue 2: Applicability of amended provisions
The appellant contended that the CIT(A) failed to consider that the amendment to Explanation (2) of section 36(1)(va) by the Finance Act, 2021 was effective from 01.04.2021 and not applicable to the Assessment Year 2019-20. The appellant argued that for the relevant assessment year, the decisions of the Supreme Court and the Jurisdictional High Court should apply regarding the allowability of PF/ESI payments before the due date of filing the income tax return.

Issue 3: Arguments by the Department
The Department defended the impugned order and sought the dismissal of the appellant's appeal.

Issue 4: Tribunal's Decision
After examining the submissions and previous orders, the Tribunal focused on the single issue of the allowability of PF payment after the statutory due date but before the due date of filing the income tax return. The Tribunal noted the conflicting judgments on this issue but emphasized that no disallowance should be made under section 143(1) of the Act when the issue is debatable. The Tribunal found merit in the appellant's arguments, set aside the CIT(A)'s order, and allowed the appeal.

In conclusion, the Tribunal held that the CIT(A) erred in applying the amended provisions of section 36(1)(va) to disallow the appellant's claim for PF deduction. The decision was in favor of the appellant, and the order was pronounced on March 7, 2022.