Appeal Allowed: Late EPF/ESI Deposit Disallowance Deleted

The Appellate Tribunal ITAT Pune allowed the appeal, directing the deletion of the disallowance of late deposit of Employees' share of EPF and ESI under section 36(1)(va) of the Income-tax Act for the assessment year 2019-20. The Tribunal held that the amount was deposited before the due date under section 139(1) of the Act, in line with established legal principles predating the recent amendment introduced by the Finance Act, 2021. Therefore, the disallowance was deemed unnecessary, resulting in the deletion of the addition.

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Issues:
Confirmation of disallowance of late deposit of Employees' share of EPF and ESI under section 36(1)(va) of the Income-tax Act, 1961.

Analysis:
The Appellate Tribunal ITAT Pune heard an appeal against the order passed by the National Faceless Appeal Centre related to the assessment year 2019-20. The only issue raised was the confirmation of disallowance of Rs.1,44,897 made by the Assessing Officer under section 36(1)(va) of the Act due to late deposit of the Employees' share of EPF and ESI. The AO disallowed the amount in the intimation under section 143(1) of the Act, which was affirmed by the ld. CIT(A).

Upon considering the facts, it was noted that the assessee did deduct the employees' share of EPF and ESI but deposited it after the due date under the respective legislations but before the time stipulated for filing the return under section 139(1) of the Act for the relevant year. The Tribunal referred to various judgments, including the one by the Hon'ble Himachal Pradesh High Court, which held that both employees' and employer's contributions are allowed as deduction if deposited before the due date.

The Tribunal highlighted the amendment introduced by the Finance Act, 2021, which inserted Explanation 2 below section 36(1)(va), stating that the provisions of section 43B shall not apply for determining the due date under this clause from 1st April, 2021. As the assessment year in question was 2019-20, anterior to this amendment, the Tribunal held that the law as established by previous judgments, like the one in CIT vs. Nipso Polyfabriks Ltd., applies. Therefore, the disallowance was deemed unnecessary as the amount was deposited before the due date under section 139(1) of the Act, leading to the deletion of the addition.

Consequently, the Tribunal allowed the appeal, directing the deletion of the addition. The order was pronounced in the Open Court on 22nd June, 2022.

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