2022 (7) TMI 889 - AT - Income Tax

Delayed employee contribution towards PF/ESI - amount deposited before the due date for filing of return of income or not? - scope of amendment in statute made by Finance Act, 2021 in Section 36(1)(va) and 43B - HELD THAT - As in the instant appeal for ay 2018-19, if the employee share of PF/ESI is deposited by employer to the credit of employee with the relevant fund maintained for PF/ESI before the due date of filing of return of income u/s. 139(1) of the 1961 Act, then the assessee shall be entitled for deduction u/s. 36(1)(va) of the 1961 Act. The assessee's counsel has neither filed tax-audit report nor filed challans, before the tribunal. Thus for limited purposes, we are directing AO to verify the challans evidencing deposit of aforesaid employee share of PF/ESI and that it was deposited before the due date prescribed for filing of return of income u/s. 139(1), before allowing claim of deduction u/s. 36(1)(va) of the 1961 Act. The assessee is directed to file before AO complete details/bifurcation of employees share of PF/ESI which was added to income of the assessee u/s. 36(1)(va) read with Section 2(24)(x) along with relevant paid challans, for verification. While passing the above order, we also note that several Division Benches of ITAT across Country have now passed appellate orders, even after considering the amendments made to Section 36(1)(va) and 43B of the 1961 Act by Finance Act, 2021, holding that if the employee share of PF/ESI is deposited by employer to the credit of employee with the relevant fund maintained for PF/ESI before the due date of filing of return of income u/s. 139(1) of the 1961 Act, then the tax-payer shall be entitled for deduction u/s. 36(1)(va) of the 1961 Act. The assessee succeeds in this appeal.

Summary

Issues Involved:

1. Allowability of deduction under Section 36(1)(va) read with Section 2(24)(x) and Section 43B of the Income-tax Act, 1961, for delayed deposit of employee contribution towards PF/ESI.

Issue-wise Analysis:

1. Allowability of deduction under Section 36(1)(va) read with Section 2(24)(x) and Section 43B of the Income-tax Act, 1961, for delayed deposit of employee contribution towards PF/ESI:

The assessee filed its return for AY 2018-19 declaring an income of Rs. 1,31,08,690/-, which was processed by the CPC, Bengaluru under Section 143(1) of the Income-tax Act, 1961. An addition of Rs. 3,14,793/- was made to the income for delayed deposit of employee contribution towards PF/ESI. The assessee appealed against this addition, which was dismissed by the CIT(A), referencing the provisions of Section 143(1)(a)(iv) and amendments made by the Finance Act, 2021, to Section 36(1)(va) and Section 43B.

The assessee contended that the employee contribution towards PF/ESI, although deposited late, was done before the due date for filing the return of income under Section 139(1). The assessee argued that the amendments made by the Finance Act, 2021, should be applied prospectively from AY 2021-22 onwards, as indicated in the Memorandum to the Finance Bill, 2021.

The Revenue, however, argued that the amendments were clarificatory and retrospective, emphasizing that the statute mandates deposit within the due date prescribed under the relevant statute governing PF/ESI.

The Tribunal, after considering rival contentions and various judicial precedents, including the decision of the Allahabad Tribunal in the case of Commercial Auto Sales Private Limited, held that if the employee share of PF/ESI is deposited by the employer before the due date for filing the return of income under Section 139(1), the deduction should be allowed under Section 36(1)(va). The Tribunal noted that the Finance Act, 2021, amendments are prospective and applicable from AY 2021-22 onwards, as clarified in the Memorandum to the Finance Bill, 2021.

The Tribunal directed the AO to verify the challans evidencing the deposit of the employee share of PF/ESI before the due date for filing the return of income under Section 139(1), and allow the deduction accordingly. The Tribunal's decision aligns with the principles of judicial discipline and consistency, following the jurisdictional High Court's decision in Sagun Foundry Private Limited.

Conclusion:

The Tribunal allowed the appeal, directing the AO to verify the deposit of employee contributions towards PF/ESI before the due date for filing the return of income under Section 139(1) and allow the deduction under Section 36(1)(va). The amendments made by the Finance Act, 2021, were held to be prospective, applicable from AY 2021-22 onwards.