2021 (12) TMI 1331 - AT - Income Tax

Tribunal directs AO to allow deductions for employee contributions pre-due date under section 139(1)

The tribunal allowed the appeal, directing the AO to verify and allow the deduction for employee contributions deposited before the due date for filing ... Disallowing the late deposit of employee’s contribution towards ESI and EPF - contribution though the same was deposited before the due date of filing of return of income under section 139 - amendment by Finance Act, 2021 in Section 36(1)(va) and Section 43B - HELD THAT:- There is no dispute that prior to the amendment by Finance Act, 2021 in Section 36(1)(va), Section 43B, the issue of allowability of the employee’s contribution deposited belatedly as per the due date of the respective Acts however, before the due of filling of return of income under Section 139(1) is covered by the decisions of Hon'ble jurisdictional High Court as well other High Courts. The Hon'ble Jurisdictional High Court in the case of Sagun Foundry Private Limited [2016 (12) TMI 1479 - ALLAHABAD HIGH COURT] decided this issue in favour of the assessee. Revenue has not disputed the fact that the Employee’s contribution towards EPF and ESI was deposited by the assessee before the due date of return of income u/s 139(1) which was extended by the CBDT upto 31st October, 2018. Therefore, the claim of assessee is allowed. Issues Involved:1. Disallowance of late deposit of employee’s contribution towards ESI and EPF.2. Conflicting views of different courts on the matter.3. Retrospective application of Explanation 1 below clause (va) of section 36(1).4. Admissibility of deduction for late deposit of employee contributions.5. Impact of Finance Act 2021 amendments on the assessment year 2018-19.Detailed Analysis:1. Disallowance of Late Deposit of Employee’s Contribution Towards ESI and EPF:The primary issue for adjudication was whether the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] were justified in disallowing the late deposit of employee’s contributions towards ESI and EPF, even though the contributions were deposited before the due date for filing the return of income under section 139(1) of the Income Tax Act.2. Conflicting Views of Different Courts:The appellant argued that where there are conflicting views of different courts, the view favorable to the assessee should be applied. The appellant cited the jurisdictional High Court's binding precedence which favored the assessee. The respondent, however, relied on decisions from the Hon'ble Gujarat High Court, Hon'ble Madras High Court, and Hon'ble Kerala High Court, which supported the disallowance.3. Retrospective Application of Explanation 1 Below Clause (va) of Section 36(1):The appellant contended that Explanation 1, introduced by the Finance Act 2021, could not be applied retrospectively. The explanation defines the due date for depositing employee contributions as the date prescribed under the relevant statute governing ESI and EPF, not the due date for filing the return of income under section 139(1).4. Admissibility of Deduction for Late Deposit of Employee Contributions:The appellant argued that prior to the amendment by the Finance Act 2021, the contributions deposited before the due date for filing the return of income under section 139(1) were allowable deductions under section 43B. The respondent countered that the amendment to section 36(1)(va) and section 43B, being retrospective, disallowed such claims.5. Impact of Finance Act 2021 Amendments on the Assessment Year 2018-19:The tribunal examined whether the amendments made by the Finance Act 2021, which clarified that section 43B does not apply to employee contributions, could affect the assessment year 2018-19. It was noted that the amendments were intended to apply prospectively from April 1, 2021, and not retrospectively.Tribunal’s Findings:1. Prior to the Amendment by Finance Act 2021: The tribunal noted that before the amendment, the issue of allowability of employee contributions deposited before the due date for filing the return of income was covered by various High Court decisions favoring the assessee. The Hon'ble jurisdictional High Court in Sagun Foundry Private Limited vs. Commissioner of Income Tax had decided this issue in favor of the assessee.2. Post Amendment by Finance Act 2021: The tribunal acknowledged the Finance Act 2021 amendments, which clarified that section 43B does not apply to employee contributions. However, it emphasized that these amendments were effective from April 1, 2021, and would apply to assessment year 2021-22 and subsequent years, not retrospectively.3. Judicial Precedence and Binding Nature: The tribunal highlighted that it was bound by the jurisdictional High Court's decision in Sagun Foundry Private Limited, which allowed the deduction if the contributions were deposited before the due date for filing the return of income under section 139(1).4. Verification of Claims: The tribunal directed the AO to verify the challans evidencing the deposit of employee contributions before the due date for filing the return of income. If verified, the assessee’s claim for deduction should be allowed.Conclusion:The tribunal allowed the appeal of the assessee, directing the AO to verify the deposit details and allow the deduction for employee contributions deposited before the due date for filing the return of income under section 139(1). The tribunal emphasized adherence to the jurisdictional High Court's decision and clarified that the Finance Act 2021 amendments would apply prospectively.