2021 (11) TMI 1062 - AT - Income Tax

Tribunal deletes incorrect addition towards employees' ESI/PF, follows Rajasthan High Court's decision.

Deeksha Bhala Versus DCIT, CPC, Bengaluru

The Tribunal allowed the appeal, directing the deletion of the addition of Rs. 58,147/- made by the CPC towards the employees' contribution to ESI and PF. ... Additions in respect of employees contribution towards ESI/PF - deposit of the employees’s contribution towards ESI and PF though paid before the due date of filing of return of income u/s 139(1) - Scope of amendment - HELD THAT:- In the instant case, admittedly and undisputedly, the employees’ contribution to ESI and PF collected by the assessee from its employees have been deposited well before the due date of filing of return of income u/s 139(1) of the Act. Further, the ld D/R has referred to the explanation to section 36(1)(va) and section 43B by the Finance Act, 2021 and has also referred to the rationale of the amendment as explained by the Memorandum in the Finance Bill, 2021, however, we find that there are express wordings in the said memorandum which says “these amendments will take effect from 1st April, 2021 and will accordingly apply to assessment year 2021-22 and subsequent assessment years”. In the instant case, the impugned assessment year is assessment year 2019-20 and therefore, the said amended provisions cannot be applied in the instant case. See MOHANGARH ENGINEERS AND CONSTRUCTION COMPANY [2021 (8) TMI 563 - ITAT JODHPUR] and SHRI GOPALAKRISHNA ASWINI KUMAR [2021 (10) TMI 952 - ITAT BANGALORE] - Decided in favour of assessee. Issues Involved:1. Confirmation of additions in respect of employees' contribution towards ESI/PF.2. Applicability of Section 36(1)(va) and Section 43B.3. Retrospective application of the amendment to Section 36(1)(va) by the Finance Act, 2021.4. Scope of adjustments under Section 143(1) of the Act.Detailed Analysis:1. Confirmation of Additions in Respect of Employees' Contribution towards ESI/PF:The primary issue in this case was the confirmation of additions made by the CIT(A) regarding the employees' contribution towards ESI/PF for the assessment year 2019-20. The assessee had filed its return of income on 30.09.2019, declaring a total income of Rs. 1,06,82,834/-. The CPC disallowed Rs. 58,147/- towards employees' contribution to ESI and PF, as these were not deposited within the prescribed due dates under Section 36(1)(va) of the Income Tax Act.2. Applicability of Section 36(1)(va) and Section 43B:The assessee argued that the employees' contribution was deposited before the due date of filing the return of income under Section 139(1), relying on the decisions of the Rajasthan High Court in CIT vs. Rajasthan State Beverages Corporation Ltd. and CIT vs. State Bank of Bikaner and Jaipur. The Tribunal noted that the issue was well-settled by the Rajasthan High Court, which held that contributions made before the due date of filing the return should not be disallowed under Section 43B or Section 36(1)(va).3. Retrospective Application of the Amendment to Section 36(1)(va) by the Finance Act, 2021:The Revenue argued that the amendment to Section 36(1)(va) by the Finance Act, 2021, clarified that employees' contributions must be deposited within the due dates specified in the respective legislation. However, the Tribunal found that the amendment, effective from 1st April 2021, applies prospectively to the assessment year 2021-22 and subsequent years. The Tribunal referred to the explanatory memorandum, which explicitly stated the prospective application of the amendment.4. Scope of Adjustments under Section 143(1) of the Act:The Tribunal examined whether the adjustment made by the CPC under Section 143(1) was within the scope of prima facie adjustments. The Tribunal concluded that since the contributions were deposited before the due date of filing the return, the adjustment made by the CPC was beyond the scope of Section 143(1)(a)(iv).Conclusion:The Tribunal allowed the appeal, directing the deletion of the addition of Rs. 58,147/- made by the CPC towards the employees' contribution to ESI and PF. The Tribunal emphasized adherence to the binding decisions of the jurisdictional Rajasthan High Court, which held that contributions made before the due date of filing the return should not be disallowed under Section 43B or Section 36(1)(va).Order Pronouncement:The order was pronounced in the open Court on 15/11/2021, allowing the appeal of the assessee.