2022 (9) TMI 181 - AT - Income Tax

Delayed ESI and PF payment - Employees contribution to PF ESI beyond due date specified under the respective Acts - HELD THAT - We are of the considered view that payments made to employees contribution to PF ESI beyond due date specified under the respective Acts, but within due date for filing of return of income u/s.139(1) is an allowable deduction u/s 36(1)(va) and we direct the AO to delete additions made towards disallowance of employees contribution to PF ESI u/s.36(1(va) r.w.s. 2(24)(x) - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance of Rs. 10,88,270/- for belated payment of PF/ESI.
2. Applicability of Section 36(1)(va) r.w.s. 43B of the Income Tax Act.
3. Prospective vs. retrospective application of the amendment by Finance Act, 2021.

Issue-wise Detailed Analysis:

1. Disallowance of Rs. 10,88,270/- for belated payment of PF/ESI:
The assessee, a private limited company engaged in human resource services, filed its return of income for AY 2020-21 on 26.01.2021, admitting a total income of Rs. 9,00,860/-. The Assessing Officer disallowed Rs. 10,88,270/- for late payment of employees' contribution to PF/ESI under Section 36(1)(va) r.w.s. 43B of the Act. The CIT(A) upheld this disallowance. The assessee argued that the payments were made before the due date of filing the return of income, thus should be deductible.

2. Applicability of Section 36(1)(va) r.w.s. 43B of the Income Tax Act:
The assessee contended that the provisions of Section 36(1)(va) allow deductions if the employees' contributions to PF/ESI are credited before the due date of filing the return of income. The CIT(A) failed to consider the Jurisdictional ITAT decision, which allowed such deductions if payments were made before the due date of return filing. The assessee cited the case of M/s. Adyar Ananda Bhavan Sweets India Pvt Ltd vs. The ACIT, where it was held that the amendment by Finance Act, 2021, is prospective and not retrospective.

3. Prospective vs. retrospective application of the amendment by Finance Act, 2021:
The Tribunal considered the amendment to Section 36(1)(va) by the Finance Act, 2021, which clarified that the provisions of Section 43B do not apply to employees' contributions. The amendment is applicable from AY 2021-22 onwards, indicating it is prospective. The Tribunal referenced several High Court decisions and the Supreme Court ruling in CIT vs. Vatika Township Pvt. Ltd., which emphasized that amendments to taxing statutes are generally prospective unless explicitly stated otherwise.

Tribunal's Findings:
The Tribunal found that the amendment to Section 36(1)(va) by the Finance Act, 2021, is prospective and applies from AY 2021-22 onwards. Thus, for AY 2020-21, the employees' contributions to PF/ESI, if made before the due date of filing the return of income, are deductible. The Tribunal directed the Assessing Officer to delete the additions made towards the disallowance of employees' contributions to PF/ESI.

Conclusion:
The appeal filed by the assessee was allowed, and the disallowance of Rs. 10,88,270/- for belated payment of PF/ESI was deleted. The Tribunal concluded that the amendment by Finance Act, 2021, is prospective and applicable from AY 2021-22, thereby allowing deductions for payments made before the due date of filing the return of income for AY 2020-21.