2022 (8) TMI 294 - AT - Income Tax

Delayed Employees' contribution to PF and ESI - Scope of amendment - HELD THAT - Hon ble jurisdictional High Court in case of Essae Taroka (P.) Ltd. 2014 (3) TMI 386 - KARNATAKA HIGH COURT and Spectrum Consultants India (P.) Ltd. 2013 (7) TMI 414 - KARNATAKA HIGH COURT has affirmed the view that assessee would have been entitled to deduction of employees' contribution of PF and ESI if the payment was made prior to due date of filing of the return of income u/s 139(1). In view of the judicial pronouncements cited supra, we hold that the amendment to section 36(1)(va) and 43B of the I.T. Act will not have application for the relevant assessment year, namely assessment year 2018-19. Accordingly, we direct the A.O. to grant deduction in respect of employees' contribution to PF and ESI since the assessee has made the payment before the due date of filing of return u/s 139(1) - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of employee's contribution towards ESIC and EPF made beyond due dates.
2. Non-following of High Court judgments regarding employee contributions.
3. Applicability of amendment to section 36(1)(va) for Assessment Year 2018-19.

Issue 1: Disallowance of employee's contribution towards ESIC and EPF made beyond due dates:
The assessee, engaged in manpower supply, filed an appeal against disallowance of employees' contribution to PF and ESI by CPC. The CIT(A) dismissed the appeal, citing the need for timely remittance of employees' contribution as per the Acts and amendments to section 36(1)(va) and 43B of the IT Act. The Tribunal referred to similar cases where deductions were allowed if payments were made before the due date of filing the return u/s 139(1) of the IT Act. It held that the amendment to section 36(1)(va) is not retrospective for AY 2018-19, directing the AO to grant deduction for the contributions made before the due date of filing the return.

Issue 2: Non-following of High Court judgments regarding employee contributions:
The assessee argued that employee contributions to PF and ESI were remitted before the due date of filing the return u/s 139(1) of the IT Act, relying on the judgment of the jurisdictional High Court. The Tribunal agreed with the assessee, citing previous decisions and High Court judgments that supported the deduction of employee contributions if paid before the due date of filing the return. The Tribunal held that the amendment to section 36(1)(va) is prospective and directed the AO to grant the deduction for the relevant assessment year.

Issue 3: Applicability of amendment to section 36(1)(va) for Assessment Year 2018-19:
The Tribunal analyzed the retrospective nature of the amendment to section 36(1)(va) and 43B of the IT Act by the Finance Act, 2021. It referred to various tribunal orders and the Supreme Court judgment to conclude that the amendment is not retrospective and does not apply to AY 2018-19. The Tribunal directed the AO to allow the deduction for employees' contribution to PF and ESI, as the payments were made before the due date of filing the return u/s 139(1) of the IT Act. The appeal by the assessee was allowed based on these findings.

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