2022 (8) TMI 560 - AT - Income Tax

Disallowance of different amount u/s. 2(24) (x) r.w.s 36 (1) (va) towards employees contribution to PF/ ESIC - assessee s captioned above have deposited the employees contribution to PF/ ESIC well before the prescribed date for filing the return of income u/s.139(1) although there may be some delinquency in abiding by the due date prescribed under the prescribed Act - HELD THAT - The issue is no more res-integra . The issue has already been settled in favour of the assessee by various judicial pronouncements by the Tribunal. The Hon ble Jurisdictional High Court of Delhi in the case of PCIT vs Pro Interactive Service (India) Pvt.Ltd. 2018 (9) TMI 2009 - DELHI HIGH COURT held that legislative intent was/is to ensure that the amount paid is allowed as an expenditure only when payment is actually made. We do not think that the legislative intent and objective is to treat belated payment of Employee s Provident Fund (EPD) and Employee s State Insurance Scheme (ESI) as deemed income of the employer under section 2(23)(x). Revenue has not placed any material on record to demonstrate that the aforesaid order cited hereinabove has been overruled/stayed/set aside by higher judicial forum. In view of the aforesaid facts, we are of the view that the AO was not justified in denying the deduction claimed by the assessee on account of late deposit of PF/ESI/EPF, albeit before filing the return of income. Admittedly, in all the above-stated matters, the Revenue had not contended that the assessee has deposited the contribution after the filing of the return of income. - Decided in favour of assessee.

Summary

Issues:
1. Correctness of disallowance of employees' contribution to PF/ESIC under section 2(24)(x) r.w.s 36(1)(va).

Analysis:
The appeals were filed by the assessees challenging the orders passed by appellate authorities regarding the disallowance of employees' contribution to PF/ESIC. The main contention was that the assessees had deposited the contributions before the due date for filing the income tax return, even though there might have been a delay in adhering to the prescribed Act. The Tribunal noted that the issue had been settled in favor of the assessee by various judicial pronouncements, including a judgment by the Hon'ble Jurisdictional High Court of Delhi. The legislative intent was to allow expenditure only when the payment is actually made, and belated payment of EPF and ESI should not be treated as deemed income of the employer under section 2(23)(x) of the Act.

Regarding the amendment brought by the Finance Act, 2021, the Tribunal clarified that it would apply prospectively from 01st April 2021 and not to the assessment year under consideration. The Revenue failed to demonstrate that the previous order had been overruled by a higher judicial forum. Therefore, the AO was not justified in denying the deduction claimed by the assessee for late deposit of PF/ESI/EPF, especially when the contributions were made before filing the return of income.

In a specific case concerning Pepsoco India Holdings Private Limited, the Tribunal emphasized that the scope of prima facie disallowance under Section 143(1) was limited and adjustments towards employees' contribution to PF/ESIC resulting in disallowance were not permissible in law. The Tribunal allowed the appeals filed by the assessees, concluding that the expenses related to employee provident fund and employee state insurance scheme were allowable, provided the contributions were deposited before the due date of filing the return of income. The Revenue was given the option to seek restoration of the appeal if it was found that the contributions were not deposited on time.

In the final decision, all appeals of the assessees were allowed by the Tribunal, following the precedent set by the Hon'ble Jurisdictional High Court of Delhi and the legal principles discussed in the judgment.