Tribunal overturns tax penalty for delayed EPF/ESI payment, citing legislative intent & retrospective application.

The Tribunal allowed the appeal of the assessee, directing the Assessing Officer to delete the addition made on account of delayed payment of employee's contribution towards EPF and ESI for the Assessment Year 2017-18. The Tribunal relied on the legislative intent and previous decisions of the Hon'ble Delhi High Court to support its decision. It also noted that the amendments made by the Finance Act, 2021 were applicable prospectively from Assessment Year 2021-22 onwards, further supporting the assessee's position.

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Issues:
Challenge of disallowance of employee's contribution towards EPF and ESI.

Analysis:
The appeal was filed against the order of the Commissioner of Income Tax concerning the disallowance of Rs.2,32,41,551/- on account of delayed payment of employee's contribution towards EPF and ESI for the Assessment Year 2017-18. The assessee contended that the contributions were paid and deposited before the due date allowed under Section 139(1) of the Income Tax Act, even though they were remitted belatedly. The Assessing Officer made the addition under Section 36(1)(va) read with Section 2(24)(x) of the Act, citing breach of Explanation 5 to Section 43B. However, the assessee argued that deductions should be allowed under Section 36(1)(va) based on judicial pronouncements, including a decision of the Hon'ble Delhi High Court. The Tribunal observed that the issue had been decided in favor of the assessee by the Hon'ble Delhi High Court in a previous case, and directed the Assessing Officer to allow the claim and delete the addition.

The Tribunal noted that the legislative intent was to ensure that the amount paid is allowed as an expenditure only when payment is actually made, and not to treat belated payments of EPF and ESI as deemed income of the employer under Section 2(24)(x) of the Act. Relying on the binding precedents of the Hon'ble Delhi High Court, the Tribunal allowed the grounds of appeal raised by the assessee. Additionally, the Tribunal considered the plea that delayed payment of employee's contribution to PF/ESIC should not be disallowable as the amendments made by the Finance Act, 2021 were applicable prospectively from Assessment Year 2021-22 onwards. The Tribunal cited decisions of the Co-ordinate Bench of Tribunal in support of this proposition and set aside the action of the revenue on this score.

In conclusion, the Tribunal allowed the appeal of the assessee, directing the Assessing Officer to delete the addition made on account of delayed payment of employee's contribution towards EPF and ESI. The decision was pronounced in open court on 14/02/2022.

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