Tribunal allows appeal, deletes Income Tax Act addition, citing timely ESI/PF deposits

The Tribunal allowed the appeal of the assessee, directing the deletion of the addition of Rs. 6,28,972 made by the CPC under Section 143(1) of the Income Tax Act. The Tribunal held that contributions towards ESI and PF, though deposited late, were made before the due date for filing the return of income, in line with Rajasthan High Court decisions. The Tribunal emphasized that the Finance Act, 2021 amendments to Section 36(1)(va) apply prospectively from April 1, 2021, and not to the assessment year in question (2019-20).

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Issues Involved:
1. Confirmation of addition under Section 2(24)(x) read with Section 36(1)(va) of the Income Tax Act, 1961 due to delay in payment of ESI and PF.
2. Authority of CPC to make adjustments under Section 143(1) for disallowance of ESI/PF late deposit under Sections 36(1)(va)/43B.

Detailed Analysis:

1. Confirmation of Addition under Section 2(24)(x) read with Section 36(1)(va):

The assessee filed its return declaring total income of Rs. 57,28,400, which was processed under Section 143(1). The CPC made a disallowance of Rs. 6,28,972 towards employee’s contribution to ESI and PF due to late payment. The CIT(A), NFAC confirmed this disallowance, leading to the appeal.

The assessee contended that although the contributions were deposited late, they were made before the due date for filing the return of income. The assessee cited the Rajasthan High Court decisions in CIT vs. Rajasthan State Beverages Corporation Ltd. and CIT vs. State Bank of Bikaner and Jaipur, which held that contributions paid before the due date of filing the return should not be disallowed. The assessee also referenced recent Tribunal decisions supporting this view.

Conversely, the Revenue argued that the contributions were not made within the prescribed due dates under Section 36(1)(va). The Revenue emphasized the Finance Act, 2021 amendment to Section 36(1)(va), asserting it clarifies that contributions must be paid within the due dates specified in the respective legislation, and this clarification applies retrospectively.

The Tribunal reviewed the facts and found that the contributions were indeed deposited before the due date for filing the return. The Tribunal noted that the Rajasthan High Court had consistently held that such contributions cannot be disallowed if paid before the return filing due date. The Tribunal also observed that the CIT(A) should have followed the jurisdictional High Court's binding decisions.

2. Authority of CPC to Make Adjustments under Section 143(1):

The assessee argued that the CPC lacked the power to make such adjustments under Section 143(1). The Tribunal, referencing its own previous decisions and those of other Benches, noted that adjustments for contributions paid before the return filing due date do not fall within the scope of prima facie adjustments under Section 143(1).

The Tribunal concluded that the Finance Act, 2021 amendments to Section 36(1)(va) and Section 43B, which specify that contributions must be paid within the due dates mentioned in the respective statutes, apply prospectively from April 1, 2021, and not to the assessment year in question (2019-20).

Conclusion:

The Tribunal directed the deletion of the addition of Rs. 6,28,972 made by the CPC, as the contributions were paid before the due date for filing the return of income. The appeal of the assessee was allowed.

Order:
The appeal of the assessee is allowed. The order was pronounced in the open Court on 28/10/2021.

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