2022 (9) TMI 300 - AT - Income Tax

Delayed payment of Employee s share of EPF/ESI subject to 36(1)(va) - scope of amendment - HELD THAT - As in the instant case, admittedly and undisputedly, the employees contribution to ESI and PF collected by the assessee from its employees have been deposited well before the due date of filing of return of income u/s 139(1) of the Act. Further, the ld D/R has referred to the explanation to section 36(1)(va) and section 43B by the Finance Act, 2021 and has also referred to the rationale of the amendment as explained by the Memorandum in the Finance Bill, 2021, however, we find that there are express wordings in the said memorandum which says these amendments will take effect from 1st April, 2021 and will accordingly apply to assessment year 2021-22 and subsequent assessment years . In the instant case, the impugned assessment year is assessment year 2019-20 and therefore, the said amended provisions cannot be applied in the instant case - See SHRI GOPALAKRISHNA ASWINI KUMAR VERSUS THE ASSISTANT DIRECTOR OF INCOME TAX, BENGALURU 2021 (10) TMI 952 - ITAT BANGALORE Thus the addition by way of adjustment while processing the return of income u/s 143(1) amounting to Rs. 2,19,330/- made by the CPC towards the deposit of the employee s contribution towards ESI and PF though paid before the due date of filing of return of income u/s 139(1) of the Act is hereby directed to be deleted. - Decided in favour of assessee.

Issues Involved:
1. Delayed payment of Employee's share of EPF/ESI and its treatment under Section 36(1)(va).
2. Retrospective application of Explanation 2 to clause (va) of Section 36(1) introduced by Finance Act 2021.
3. Consideration of submissions and legal position by lower authorities.

Detailed Analysis:

1. Delayed Payment of Employee's Share of EPF/ESI:
The main issue revolves around the confirmation of addition due to delayed payment of employees' contribution towards EPF/ESI for the assessment year 2019-20. The assessee filed its return of income along with the Tax Audit Report on 16.10.2019. The DCIT CPC made an addition of Rs. 2,19,330/- to the returned income due to delayed payment of Employees' Share of Provident Fund and Employees State Fund, although the payment was made before filing the original return of income. The assessee's application under Section 154 was rejected, and the CIT(A), NFAC confirmed the disallowance under Section 143(1) due to the failure to pay within prescribed due dates as per Section 36(1)(va).

2. Retrospective Application of Explanation 2 to Clause (va) of Section 36(1):
The assessee argued that the employee's contribution to PF/ESI, though delayed, was deposited before the due date of filing the return of income under Section 139(1). The assessee relied on various judicial precedents, including decisions of the Hon'ble Rajasthan High Court and other Tribunal decisions, which held that such contributions cannot be disallowed if deposited before the due date of filing the return. The Revenue, however, contended that the amendment by the Finance Act, 2021, which introduced Explanation 2 to Section 36(1)(va), clarified that delayed deposits are not allowable, arguing that the amendment is clarificatory and thus applies retrospectively.

3. Consideration of Submissions and Legal Position by Lower Authorities:
The Tribunal reviewed the submissions and noted that the lower authorities did not consider the binding judicial precedents from the jurisdictional Rajasthan High Court. The Tribunal emphasized that the decisions of the jurisdictional High Court are binding and should have been followed by the CIT(A). The Tribunal reiterated that the amendment by the Finance Act, 2021, is prospective, applying from assessment year 2021-22 onward, and cannot be applied to the assessment year 2019-20.

Conclusion:
The Tribunal concluded that the employees' contribution to ESI and PF, though deposited after the due dates under respective Acts, was deposited before the due date of filing the return of income under Section 139(1). Therefore, based on the binding precedents from the Rajasthan High Court, such contributions cannot be disallowed under Section 43B read with Section 36(1)(va). The Tribunal directed the deletion of the addition of Rs. 2,19,330/- made by the CPC. The appeal of the assessee was allowed.

Order:
The appeal by the assessee is allowed, and the addition of Rs. 2,19,330/- is directed to be deleted. The order was pronounced in the open Court on 31/08/2022.

← Previous Next →