2022 (10) TMI 111 - AT - Income Tax

Delayed PF / ESI conntribution - contribution received towards PF/ESIC by the assessee from its employees was not deposited before the due date - 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, we allow the ground raised by the assessee and direct the AO to delete the addition. - Decided in favour of assessee.

Summary

Issues:
1. Addition of Rs.2,25,292 under section 36(1)(va) of the Act for late deposit of PF/ESIC contributions.
2. Applicability of Finance Act 2021 amendment to Section 43B.
3. Interpretation of judicial pronouncements regarding late deposit of PF/ESIC contributions.

Issue 1: Addition of Rs.2,25,292 under section 36(1)(va) of the Act for late deposit of PF/ESIC contributions:

The assessee, a company, filed its return for A.Y. 2019-20 declaring total income of Rs.59,97,310. An intimation under section 143(1) determined the total income at Rs.62,22,610 due to late deposit of PF/ESIC contributions. The CIT(A) dismissed the appeal, leading to the current appeal. The assessee contended that despite the delay, all contributions were deposited before filing the return, citing Delhi High Court decisions. The CIT(A) upheld the AO's order. The ITAT noted the issue as covered and allowed the appeal, citing precedents favoring the assessee.

Issue 2: Applicability of Finance Act 2021 amendment to Section 43B:

The Revenue argued for the applicability of the Finance Act 2021 amendment to the present case, claiming it clarified non-application of Section 43B to sums received from employees. The ITAT held that the amendment, effective from April 1, 2021, did not apply to the assessment year in question. No material demonstrated overruling of the Delhi High Court's decision, leading the ITAT to allow the assessee's ground and direct deletion of the addition.

Issue 3: Interpretation of judicial pronouncements regarding late deposit of PF/ESIC contributions:

The ITAT referred to the Delhi High Court's decision in PCIT vs. Pro Interactive Service (India) Pvt. Ltd., stating that belated PF/ESIC payments should not be treated as deemed income of the employer. The ITAT emphasized that the legislative intent was to allow expenditure only upon actual payment. Notably, the ITAT disregarded the Revenue's reliance on the Finance Act 2021 amendment due to its inapplicability to the relevant assessment year.

In conclusion, the ITAT allowed the appeal, directing the deletion of the addition made under section 36(1)(va) of the Act, based on the timely deposit of PF/ESIC contributions before filing the return. The ITAT rejected the Revenue's argument regarding the Finance Act 2021 amendment, citing its inapplicability to the assessment year in question and upholding judicial pronouncements favoring the assessee regarding late deposit of PF/ESIC contributions.