2019 (7) TMI 1909 - AT - Income Tax

Penalty u/s 271(1)(c) - delay in making payment of EPF and ESI - payment made before the filing of return of income u/s 139(1) - HELD THAT - An undisputed fact that such deposits were made before the due date of filing of income tax returns as is apparent from page 1 of the paper book where the last date of making payment is 17/04/2014 whereas the due date for filing the income tax return was 31/10/2014. Hon ble Allahabad High Court in the case of Sagun Foundry (P.) Ltd. 2016 (12) TMI 1479 - ALLAHABAD HIGH COURT has held that if the assessee deposits the ESI and EPF before the due date of filing of return of income the disallowance u/s 36(1)(va) cannot be made. Thus all the questions formulated above are answered against Revenue and in favour of Assessee

Summary

Issues Involved:
1. Imposition of penalty under Section 271(1)(c) of the Income Tax Act.
2. Disallowance of employees' contribution to PF and ESI due to delayed deposit.

Detailed Analysis:

1. Imposition of Penalty under Section 271(1)(c) of the Income Tax Act:
The primary issue in this appeal is the confirmation of a penalty amounting to Rs. 25,600/- imposed by the Assessing Officer (AO) under Section 271(1)(c) of the Income Tax Act. The assessee contested the penalty, arguing that the delayed deposit of employees' contributions to PF and ESI was made before the due date for filing the income tax return. Therefore, as per the judgment of the Hon'ble Allahabad High Court in the case of Sagun Foundry (P.) Ltd. vs. CIT, the disallowance under Section 36(1)(va) was not warranted, and consequently, the penalty was also not justified.

2. Disallowance of Employees' Contribution to PF and ESI Due to Delayed Deposit:
The AO had observed during the assessment proceedings that the assessee deposited certain employees' contributions to PF and ESI beyond the prescribed period. However, these contributions were made before the due date for filing the income tax return, which was 31/10/2014, while the last date of making the payment was 17/04/2014. The CIT(A) confirmed the penalty imposed by the AO, but the assessee did not file an appeal against the assessment order due to the small amount involved.

The Hon'ble Allahabad High Court in Sagun Foundry (P.) Ltd. vs. CIT held that if the assessee deposits the ESI and EPF before the due date of filing the return of income, the disallowance under Section 36(1)(va) cannot be made. The judgment extensively discussed similar cases, including the Gujarat High Court's decision in Commissioner of Income-Tax Vs Gujarat State Road Transport Corporation, where it was held that Section 43B applies to both employer and employee contributions, and the deduction is allowable if the contributions are deposited before the due date for filing the return under Section 139(1).

The Tribunal found that the penalty was imposed for the delay in making the payment of EPF and ESI, but since the deposits were made before the due date for filing the income tax return, the addition itself was not justified. Therefore, the penalty sustained by the CIT(A) was not justified.

Conclusion:
The Tribunal concluded that the penalty under Section 271(1)(c) was not warranted as the disallowance of the employees' contribution to PF and ESI was not justified. The appeal of the assessee was allowed, and the penalty was deleted.

(Order pronounced in the open court on 31/07/2019)