Employee welfare fund contributions deposited by return filing deadline cannot be disallowed under section 36(1)(va)

ITAT Jabalpur ruled that delayed employee welfare fund contributions deposited by the return filing due date could not be disallowed under section 36(1)(va) through section 143(1) adjustment. The Tribunal held that explanatory amendments to the Finance Act 2021 were prospective, applicable from assessment year 2021-22 onwards, not retrospective. Since no contrary jurisdictional HC decision existed, and the scope of section 143(1) adjustments is limited, the additions were deleted. The decision followed the precedent in Nikhil Mohine case regarding prospective application of statutory explanations.

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Issues:
Appeal against Orders by CIT(A) for assessment years 2018-19 & 2019-20 regarding addition of employee's contribution to welfare funds.

Analysis:

1. Issue of Addition of Employee's Contribution to Welfare Funds:
The appeals were filed against Orders by CIT(A) dismissing/partly allowing the assessee's appeals contesting the processing of income tax returns under section 143(1) of the Income Tax Act, 1961. The primary issue was the addition of employee's contribution to welfare funds deposited beyond the due date specified in section 36(1)(va), even though deposited by the due date of filing the return of income under section 139(1) for the relevant years. The appellant argued that the addition was debatable and could not have been made under section 143(1), citing relevant case laws like CIT v. Shikarchand Jain and CIT v. GEI Engineering Ltd. The Tribunal's decision in Nikhil Mohine was crucial, where it discussed the conflicting judicial opinions and the limited scope of adjustments under section 143(1). The Tribunal opined that the employee's contribution should not be added to total income unless there is a clear decision by the jurisdictional High Court. The Tribunal also analyzed the retrospective effect of Explanations inserted by Finance Act, 2021, clarifying the applicability of sections 36(1)(va) and 43B(b) in different contexts.

2. Tribunal's Decision in Nikhil Mohine:
The Tribunal emphasized that the conflicting judicial opinions regarding the employee's contribution to welfare funds necessitated the insertion of Explanations by Finance Act, 2021. The Tribunal held that the Explanations were clarificatory and retrospective, aiming to resolve the ambiguity caused by different interpretations of sections 36(1)(va) and 43B(b). It further clarified that the Explanations were proposed as prospective amendments, effective from Assessment Year 2021-22, as per the Finance Bill, 2021. The Tribunal concluded that the impugned additions based on the employee's contribution to welfare funds could not be sustained for the relevant years, directing their deletion.

3. Decision and Conclusion:
The Tribunal's decision aligned with the view expressed in Nikhil Mohine, emphasizing the limited scope of adjustments under section 143(1) and the absence of a clear decision by the jurisdictional High Court. The Tribunal rejected the retrospective application of the Explanations and emphasized that they were prospective amendments effective from AY 2021-22. Consequently, the impugned additions were deemed unjustified and were directed for deletion, leading to the allowance of the assessee's appeals.

In conclusion, the Tribunal's detailed analysis of the conflicting judicial opinions, the retrospective nature of the Explanations, and the limited scope of adjustments under section 143(1) resulted in the deletion of the impugned additions related to the employee's contribution to welfare funds for the assessment years in question.

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