Late ESIC/PF deposits ruled deductible for AY 2018-19 & 2019-20 by ITAT Pune

The ITAT Pune, in a case concerning the addition of late deposits of employees' share of ESIC/PF for A.Y. 2018-19 and 2019-20, ruled in favor of the assessee. The disallowance made by the Assessing Officer under section 36(1)(va) of the Income-tax Act, 1961 was deleted. Citing the judgment of the Hon'ble Bombay High Court in CIT Vs. Ghatge Patil Transports Ltd., the ITAT held that the delayed deposits, made before filing the return of income, should not be disallowed. The ITAT emphasized the importance of timely compliance with statutory requirements and applied legal principles consistently across both assessment years.

---

---

Issues:
1. Addition of late deposit of employees' share of ESIC/PF for A.Y. 2018-19.
2. Interpretation of section 36(1)(va) of the Income-tax Act, 1961.
3. Impact of the judgment of the Hon'ble Bombay High Court in CIT Vs. Ghatge Patil Transports Ltd.
4. Effect of the amendment introduced by the Finance Act, 2021 on Explanation 2 below section 36(1)(va).
5. Disallowance of employees' contribution towards EPF, ESIC, etc.
6. Similarity of facts and circumstances between A.Y. 2018-19 and 2019-20.
7. Deletion of disallowance for A.Y. 2019-20.

Analysis:

1. The appeals by the assessee for A.Y. 2018-19 and 2019-20 concern the addition of late deposit of employees' share of ESIC/PF. The issue revolves around the disallowance made by the Assessing Officer (AO) under section 36(1)(va) of the Income-tax Act, 1961. The assessee contended that the delayed amount was deposited before filing the return of income u/s.139(1) of the Act.

2. The judgment of the Hon'ble Bombay High Court in CIT Vs. Ghatge Patil Transports Ltd. (2014) 368 ITR 749 (Bom.) plays a crucial role in the analysis. The High Court held that deduction for payment of employees' contribution cannot be disallowed if the contribution got credited on or before the due date. This precedent supports the assessee's case in the present scenario.

3. The Finance Act, 2021 introduced an amendment through Explanation 2 below section 36(1)(va), exempting the provisions of section 43B for determining the due date. This amendment, effective from 01.04.2021, impacts the disallowance of employees' contribution towards EPF, ESIC, etc. However, for the assessment year 2018-19, the law prior to this amendment applies, as the assessment year predates the legislative change.

4. Considering the similarity of facts and circumstances between A.Y. 2018-19 and 2019-20, the ITAT Pune, through Vice President Shri R.S. Syal, ordered the deletion of the disallowance for both years. The late deposit of the employees' share of contribution of ESIC/EPF, though made before the due date u/s.139(1) of the Act, did not warrant disallowance based on the existing legal position.

5. The consolidated order for both appeals highlights the consistent application of legal principles and precedents to ensure fairness and adherence to the law. The judgment emphasizes the importance of timely compliance with statutory requirements while also recognizing the impact of legislative amendments on tax assessments.

---