Tribunal allows appeal on disallowed ESI/PF contributions, citing IT Act & Rajasthan HC precedents

The Tribunal allowed the assessee's appeal, directing the deletion of the disallowed amount towards employees' contribution to ESI and PF. The Tribunal emphasized that payments made before the due date of filing the return cannot be disallowed under relevant sections of the Income Tax Act, citing precedents from the Rajasthan High Court. The Tribunal clarified that the amendment introduced by the Finance Act, 2021, does not apply retrospectively to the assessment year in question.

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Issues Involved:
1. Confirmation of additions in respect of employees' contribution towards ESI/PF.
2. Applicability of Section 36(1)(va) and Section 43B of the Income Tax Act.
3. Retrospective application of the amendment introduced by the Finance Act, 2021.

Detailed Analysis:

1. Confirmation of Additions in Respect of Employees' Contribution Towards ESI/PF:
The assessee filed its return of income on 30.09.2019 declaring a total income of Rs. 59,08,749/-. The return was processed under Section 143(1), and an intimation dated 10.07.2020 by CPC disallowed Rs. 1,70,599/- towards employees' contribution to ESI and PF due to late payment. The CIT(A), NFAC confirmed this disallowance, stating the failure to pay within the prescribed due dates under Section 36(1)(va). The assessee appealed against this order.

2. Applicability of Section 36(1)(va) and Section 43B of the Income Tax Act:
During the hearing, the assessee argued that although there was a delay in depositing the employees' contribution to ESI/PF beyond the due dates specified in the respective Acts, the payments were made before the due date for filing the return of income. The assessee cited various judgments, including CIT vs. Rajasthan State Beverages Corporation Ltd. (2017) and CIT vs. State Bank of Bikaner and Jaipur (2014), which supported the view that no disallowance should be made if the contributions are deposited before the due date of filing the return. The Department, however, argued that the disallowance was justified as the payments were not made within the due dates specified under Section 36(1)(va), and cited the amendment by the Finance Act, 2021, which clarifies that the contributions must be deposited within the due dates specified in the respective legislation.

3. Retrospective Application of the Amendment Introduced by the Finance Act, 2021:
The Tribunal acknowledged that the amendment to Section 36(1)(va) by the Finance Act, 2021, effective from 1st April 2021, applies prospectively from the assessment year 2021-22 onwards. The Tribunal noted the explanatory memorandum, which explicitly states that the amendments will apply from 1st April 2021. Therefore, the Tribunal concluded that the amended provisions could not be applied to the assessment year 2019-20.

Judgment:
The Tribunal referred to the consistent decisions of the Rajasthan High Court, which held that employees' contributions to ESI and PF, if paid before the due date of filing the return under Section 139(1), cannot be disallowed under Section 43B or Section 36(1)(va). The Tribunal emphasized that the CIT(A) should have followed the jurisdictional Rajasthan High Court's decisions, which are binding. Consequently, the Tribunal directed the deletion of the addition of Rs. 1,70,599/- made by CPC while processing the return under Section 143(1), as the contributions were paid before the due date of filing the return.

Conclusion:
The appeal of the assessee was allowed, and the addition made by CPC was directed to be deleted. The judgment underscored the non-retrospective application of the amendment introduced by the Finance Act, 2021, and reinforced the precedence of jurisdictional High Court decisions.

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