2022 (11) TMI 1055 - AT - Income Tax

Delayed employees' contributions to PF, ESI etc - Addition u/s 43B - HELD THAT - We hold that the employees contribution to PF and ESI should be remitted before the due date as per explanation to section 36(1)(va) i.e. on or before the due date under the relevant employee welfare legislation like PF Act, ESI Act etc., for the same to be otherwise allowable u/s.43B. We, therefore, see no reason to interfere with the order of the CIT(Appeals). Appeal filed by the assessee is dismissed.

Summary

Issues:
1. Disallowance of employees' contribution to provident fund and employees state insurance.
2. Interpretation of sections 30, 32, 36(1)(va), and 43B of the Income Tax Act, 1961.
3. Applicability of recent amendments to the Income Tax Act.
4. Appeal against CIT(A)'s order regarding deduction of employees' contribution to PF and ESI.

Issue 1: Disallowance of employees' contribution to provident fund and employees state insurance:
The assessee's appeal challenged the disallowance of employees' contribution to PF and ESI amounting to Rs.4,27,837, despite remittance before the due date of filing the return under section 139(1) of the Act. The CIT(A) held that only the employer's contribution is entitled to deduction under section 43B, not the employees' contribution. The amendment to section 36(1)(va) and 43B by the Finance Act, 2021 was considered clarificatory and retrospective.

Issue 2: Interpretation of sections 30, 32, 36(1)(va), and 43B:
The Tribunal analyzed the distinction between employer and employees' contributions based on the recent Supreme Court judgment in Checkmate Services (P.) Ltd. vs. CIT-1. The Court clarified that employees' contributions must be deposited before the due date under relevant welfare legislation for deduction under section 43B, emphasizing the separate nature of employer and employees' contributions.

Issue 3: Applicability of recent amendments to the Income Tax Act:
The Tribunal noted the retrospective operation of the amendments introduced by the Finance Act, 2021, affecting sections 36(1)(va) and 43B. The CIT(A) upheld the application of these amendments, leading to the dismissal of the assessee's appeal based on the retrospective nature of the legislative changes.

Issue 4: Appeal against CIT(A)'s order regarding deduction of employees' contribution to PF and ESI:
The assessee's appeal before the Tribunal contended that the belated payment of employees' contribution to PF & ESI, though before the due date of filing the return, should be allowable under section 43B. However, the Tribunal, guided by the Supreme Court's interpretation in Checkmate Services (P.) Ltd. case, upheld the CIT(A)'s decision, emphasizing the due date requirement for employees' contributions under section 36(1)(va).

In conclusion, the Tribunal dismissed the appeal, aligning with the Supreme Court's interpretation and the legislative amendments, affirming the due date requirement for employees' contributions under relevant welfare legislation for deduction under the Income Tax Act. The judgment emphasized the distinct treatment of employer and employees' contributions, ultimately upholding the disallowance of employees' contribution to PF and ESI in this case.