2022 (6) TMI 346 - AT - Income Tax

Disallowance of late payment of employees contribution to PF/ESI - addition confirmed by processing of return u/s 143(1) later confirmed vide rectification order u/s 154 - employee share of PF/ESI collected by employer from salaries of employees which was not deposited before the due date prescribed under the statute governing PF/ESI and claimed by Revenue to be hit by provision of Section 36(1)(va) read with Section 2(24)(x) - Scope of amendment by Finance Act 2021 in Section 36(1)(va) and 43B - HELD THAT - As decided in M/S. COMMERCIAL AUTO SALES PRIVATE LIMITED 2022 (1) TMI 1000 - ITAT ALLAHABAD if the employee share of PF/ESI is deposited by employer to the credit of employee with the relevant fund maintained for PF/ESI before the due date of filing of return of income u/s 139(1) of the 1961 Act then the assessee shall be entitled for deduction u/s 36(1)(va). Issue to be decided in favour of the tax-payer after considering the amendment made by Finance Act 2021 by holding that if the employee share of contribution towards PF/ESI is deposited by employer-taxpayer with the relevant fund governing PF/ESI to the credit of employee before the due date for filing of return of income prescribed u/s139(1) for the relevant assessment year the employer-taxpayer shall be entitled for deduction in the previous year relevant to ay to which such employee contribution to PF/ESI pertain. Division Bench of Allahabad-tribunal in the case of M/s Bharat Pumps and Compressors Limited 2021 (10) TMI 496 - ITAT ALLAHABAD also decided this issue in favour of the taxpayer after considering the amendment made by Finance Act 2021 by holding that if the employee share of contribution towards PF/ESI is deposited by employer-taxpayer with the relevant fund governing PF/ESI to the credit of employee before the due date for filing of return of income prescribed u/s139(1) for the relevant assessment year the employer-taxpayer shall be entitled for deduction in the previous year relevant to ay to which such employee contribution to PF/ESI pertains. It is also observed that several Benches of tribunal across India have consistently taken a similar view in favour of the tax-payer even after considering amendment made by Finance Act 2021 to Section 36(1)(va) and 43B. We hold that in the instant appeal for ay 2018-19 if the employee share of PF/ESI is deposited by employer to the credit of employee with the relevant fund maintained for PF/ESI before the due date of filing of return of income u/s 139(1) of the 1961 Act then the assessee shall be entitled for deduction u/s 36(1)(va) of the 1961 Act. However whether this amount of Rs. 31, 46, 748/- towards employees share of PF/ESI was actually deposited before the due date for filing of return u/s 139(1) or not is a matter of verification. Thus for limited purposes we are directing AO to verify the challans evidencing deposit of aforesaid employee share of PF/ESI and that it was deposited before the due date prescribed for filing of return of income u/s 139(1) before allowing claim of deduction u/s 36(1)(va) of the 1961 Act. The assessee is directed to file before AO complete details/bifurcation of employees share of PF/ESI which was added to income of the assessee u/s 36(1)(va) read with Section 2(24)(x) along with relevant paid challans for verification. Appeal of assessee allowed.

Summary

Issues Involved:
1. Disallowance of Late Payment of Employee Contributions to PF/ESI
2. Applicability of Amendments by Finance Act, 2021

Detailed Analysis:

Disallowance of Late Payment of Employee Contributions to PF/ESI:
The primary issue in this appeal was the disallowance of Rs. 31,46,748/- added to the income of the assessee due to the late payment of employee contributions to PF/ESI. The assessee argued that the contributions, although deposited late, were made before the due date for filing the return of income under Section 139(1) of the Income-tax Act, 1961. The Revenue contended that such late payments should be disallowed under Section 36(1)(va) read with Section 2(24)(x) of the Act, which mandates that employee contributions must be deposited within the time prescribed under the relevant statute governing PF/ESI.

The Tribunal noted that various High Courts, including the Allahabad High Court, have held that if employee contributions to PF/ESI are deposited before the due date for filing the return of income under Section 139(1), the deduction should be allowed. The Tribunal cited the Allahabad High Court decision in the case of Sagun Foundry Private Limited, which held that Section 43B applies to both employer and employee contributions, allowing deductions if payments are made before the due date for filing the return of income.

Applicability of Amendments by Finance Act, 2021:
The Tribunal also addressed the amendments made by the Finance Act, 2021, which inserted Explanation 2 to Section 36(1)(va) and Explanation 5 to Section 43B, clarifying that the provisions of Section 43B shall not apply to employee contributions to PF/ESI. The amendments were intended to provide certainty and were explicitly made applicable from the assessment year 2021-22 onwards.

The Tribunal observed that the amendments by the Finance Act, 2021, are prospective and do not apply to earlier assessment years. This interpretation aligns with the legislative intent to resolve disputes and reduce litigation for periods before the assessment year 2021-22. The Tribunal noted that several other benches of the ITAT have consistently held that the amendments are prospective and do not have retrospective effect.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, directing the Assessing Officer to verify the challans evidencing the deposit of employee contributions to PF/ESI before the due date for filing the return of income under Section 139(1). If verified, the assessee shall be entitled to the deduction under Section 36(1)(va) of the Act. The decision was based on the consistent judicial interpretation that the amendments by the Finance Act, 2021, are prospective and the principles laid down by the Allahabad High Court in the case of Sagun Foundry Private Limited.