Employees' ESI & PF contributions can't be disallowed if deposited pre-tax return due date.

The Tribunal held that employees' contributions to ESI and PF, deposited before the due date of filing the return of income, could not be disallowed under Section 43B read with Section 36(1)(va). The addition made by the CPC was directed to be deleted, and the appeal of the assessee was allowed.

---

---

Issues Involved:
1. Confirmation of additions in respect of employees' contribution towards ESI/PF for the assessment year 2018-19.
2. Applicability of Section 36(1)(va) and Section 43B of the Income Tax Act.
3. Impact of the amendment introduced by the Finance Act, 2021 on the assessment year 2018-19.

Issue-wise Detailed Analysis:

1. Confirmation of Additions in Respect of Employees' Contribution towards ESI/PF:
The assessee filed its return of income on 06.10.2018 declaring a total income of Rs. Nil, which was processed under Section 143(1). The Centralized Processing Center (CPC) made a disallowance of Rs. 2,48,633/- towards employees' contribution to ESI and PF, which was confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)], National Faceless Assessment Centre (NFAC) on the grounds that the contributions were not paid within the prescribed due dates as per Section 36(1)(va) of the Act.

2. Applicability of Section 36(1)(va) and Section 43B of the Income Tax Act:
During the hearing, the assessee argued that the employees' contributions to PF/ESI, though deposited with a delay beyond the due dates mentioned in the respective Acts, were made well before the due date of filing the return of income. The assessee relied on various judicial precedents, including decisions from the Hon'ble Rajasthan High Court in CIT vs. Rajasthan State Beverages Corporation Ltd. and CIT vs. State Bank of Bikaner and Jaipur, which held that such contributions deposited before the due date of filing the return of income should not be disallowed under Section 36(1)(va).

The Revenue, on the other hand, argued that the disallowance was correctly made under Section 143(1)(a)(iv) based on the tax audit report, which flagged the variance between the tax audit report and the Income Tax Return (ITR). The Revenue also cited the amendment brought by the Finance Act, 2021, to Section 36(1)(va), which clarified that employees' contributions to specified funds would not be allowed as deductions if there was any delay in deposit beyond the due dates mentioned in the respective legislations.

3. Impact of the Amendment Introduced by the Finance Act, 2021 on the Assessment Year 2018-19:
The assessee contended that the amendment to Section 36(1)(va) introduced by the Finance Act, 2021, would take effect from 1st April 2021 and apply to assessment year 2021-22 and subsequent years, not to the impugned assessment year 2018-19. The Tribunal agreed with this contention, noting that the amendment could not be applied retrospectively to the assessment year 2018-19.

The Tribunal referred to its own decision in the case of Mohangarh Engineers and Construction Company vs. DCIT, CPC, where it was held that employees' contributions to ESI and PF deposited before the due date of filing the return of income could not be disallowed under Section 43B read with Section 36(1)(va). The Tribunal also noted that the CIT(A) should have followed the binding decisions of the jurisdictional Rajasthan High Court, which consistently held that contributions paid before the due date of filing the return of income could not be disallowed.

Conclusion:
The Tribunal concluded that the employees' contributions to ESI and PF, which were deposited before the due date of filing the return of income under Section 139(1), could not be disallowed under Section 43B read with Section 36(1)(va). The addition made by the CPC while processing the return of income under Section 143(1) was directed to be deleted. Consequently, the appeal of the assessee was allowed.

Order pronounced in the open Court on 15/11/2021.

---