Tribunal allows appeals on PF/ESI contributions, rejects disallowance due to delayed deposits

The Tribunal allowed the appeals filed by the assessees, holding that the disallowance of employee's contribution to PF/ESI due to delayed deposits was not justified as long as the contributions were deposited before the due date of filing income tax returns. The Tribunal emphasized that the Revenue failed to show that relevant judicial pronouncements had been overruled. The amendments by Finance Act, 2021 were deemed not applicable to the assessment years in question. The order was pronounced on 18.05.2022, with all appeals being allowed.

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Issues Involved:
1. Disallowance of employee’s contribution to PF/ESI due to delayed deposits as per respective Acts.
2. Applicability of amendments brought by Finance Act, 2021 to the assessment years under consideration.

Issue-wise Detailed Analysis:

1. Disallowance of Employee’s Contribution to PF/ESI Due to Delayed Deposits:

The primary issue in all the appeals is the disallowance of employee’s contribution to PF/ESI on account of delayed deposits. The appellants argued that the contributions, although delayed, were deposited before the due date of filing the income tax return as per Section 43B of the Income Tax Act, 1961. The appellants cited various judicial pronouncements supporting their stance, including CIT v. Alom Extrusions Ltd. [2009] 319 ITR 306 (SC) and CIT v. Vinay Cement Ltd. [2007] 213 CTR 268 (SC), among others.

The Tribunal noted that the issue had been settled in favor of the assessees by several judicial pronouncements, including the Hon’ble Jurisdictional High Court of Delhi in the case of PCIT vs. Pro Interactive Service (India) Pvt. Ltd., ITA No.983/2018, where it was held that the legislative intent was to ensure the amount paid is allowed as an expenditure only when payment is actually made and not to treat belated payment of Employee’s Provident Fund and Employee’s State Insurance Scheme as deemed income of the employer under Section 2(24)(x) of the Act.

2. Applicability of Amendments by Finance Act, 2021:

The Revenue argued that the amendments brought by Finance Act, 2021, which clarified that the provisions of Section 43B shall not apply to sums received by the assessee from employees, should be applicable. However, the Tribunal observed that the "notes on clauses" to the Finance Bill 2021 clearly stated that the amendment would take effect from 01st April 2021 and would prospectively apply in relation to the assessment year 2021-22 and subsequent assessment years. Therefore, the amendments did not apply to the assessment years under consideration in these appeals.

Conclusion:

The Tribunal concluded that the AO was not justified in denying the deduction claimed by the assessees on account of late deposit of PF/ESI, provided the contributions were deposited before the due date of filing the income tax return. The Tribunal allowed the appeals, emphasizing that the Revenue had not demonstrated that the cited judicial pronouncements had been overruled or set aside by a higher judicial forum.

Additionally, in the case of Dayal Industries Pvt. Ltd., it was noted that there was no delay in depositing the employee’s contribution towards PF/ESI, and the error was due to a typographical mistake in the Tax Audit Report.

Order Pronouncement:

The Tribunal allowed all the appeals filed by the respective assessees, and the order was pronounced in the open court on 18.05.2022.

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