2022 (10) TMI 110 - AT - Income Tax

Belated payment of Employee s Provident Fund (EPD) and Employee s State Insurance Scheme (ESI) - HELD THAT - 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 the matter, the Revenue had not contended that the assessee has deposited the contribution after the filing of the return of income. Respectfully following the decision we allow the ground raised by the assessee and direct the AO to delete the addition. See PRO INTERACTIVE SERVICE (INDIA) PVT. LTD. 2018 (9) TMI 2009 - DELHI HIGH COURT - Decided in favour of assessee.

Issues:
1. Disallowance of deduction of employees' contribution to provident fund under section 36(1)(va).
2. Applicability of the amendment brought by Finance Act 2021.
3. Judicial precedents and legal interpretation regarding the deduction of provident fund contributions.
4. Denial of deduction by the Assessing Officer.

Issue 1: Disallowance of deduction of employees' contribution to provident fund under section 36(1)(va):
The appeal was against the order passed by the Commissioner of Income Tax (Appeals) relating to the Assessment Year 2019-20. The assessee, a Private Limited company, had filed its return of income declaring total income. The dispute arose from the disallowance of a deduction of employees' contribution to provident fund under section 36(1)(va). The assessee contended that the contributions were deposited before the due date of filing the return of income, thus challenging the disallowance. The argument was supported by various case laws and judicial precedents favoring the assessee's position. The Tribunal held in favor of the assessee, citing previous judicial pronouncements and directing the Assessing Officer to delete the addition.

Issue 2: Applicability of the amendment brought by Finance Act 2021:
The Revenue argued that the amendment brought by the Finance Act 2021 would be applicable to the case, stating that the provisions of Section 43B of the Act shall not apply to certain sums received by the assessee from its employees. However, the Tribunal noted that the amendment clearly stated its effective date as 1st April 2021, applying to the assessment year 2021-22 and subsequent years. Therefore, the Tribunal concluded that the amendment did not apply to the assessment year under consideration, thereby rejecting the Revenue's argument.

Issue 3: Judicial precedents and legal interpretation regarding the deduction of provident fund contributions:
The Tribunal referred to various judicial pronouncements, including a judgment by the Hon'ble Jurisdictional High Court of Delhi, which had ruled in favor of the assessee regarding the treatment of belated payments of provident fund and ESI contributions. The Tribunal emphasized that the legislative intent was to allow expenditure only when payments were actually made, rather than treating belated payments as deemed income of the employer. This legal interpretation supported the assessee's position and influenced the Tribunal's decision in favor of the assessee.

Issue 4: Denial of deduction by the Assessing Officer:
The Assessing Officer had denied the deduction claimed by the assessee on the grounds of late deposit of PF/ESI/EPF contributions, despite the contributions being made before the filing of the return of income. The Tribunal found that the Revenue had not presented any material to show that the previous order favoring the assessee had been overruled or set aside by a higher judicial forum. Consequently, the Tribunal held that the Assessing Officer was not justified in denying the deduction and directed the deletion of the addition, ruling in favor of the assessee.

In conclusion, the Tribunal allowed the appeal filed by the assessee, emphasizing the importance of timely deposits of provident fund contributions and highlighting the legal precedents supporting the assessee's position.

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