Tribunal rules ESI & PF contributions deductible, cites Rajasthan HC decisions

The tribunal ruled in favor of the assessee, concluding that employees' contributions to ESI and PF, deposited before the due date of filing the return of income, should not be disallowed under Section 36(1)(va). The tribunal directed the deletion of the addition made by the CPC, allowing the appeal. It emphasized the binding nature of Rajasthan High Court's decisions and clarified that the amendments by the Finance Act, 2021, do not apply retrospectively to the assessment year 2018-19.

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Issues Involved:
1. Confirmation of additions in respect of employees' contribution towards ESI/PF.
2. Jurisdiction and authority of CIT(A) to confirm the disallowance post rectification order u/s 154.
3. Applicability of amendments to Section 36(1)(va) and Section 43B by the Finance Act, 2021.

Detailed Analysis:

Issue 1: Confirmation of Additions in Respect of Employees' Contribution towards ESI/PF
The assessee filed a return of income declaring total income of Rs. 22,06,880/- for the assessment year 2018-19. The CPC made a disallowance of Rs. 22,55,649/- towards employees' contribution to ESI and PF due to delayed payment beyond the prescribed due dates as per Section 36(1)(va) of the Act. The assessee appealed, arguing that the contributions were deposited before the due date of filing the return of income, citing precedents from the Rajasthan High Court and other tribunal decisions.

Issue 2: Jurisdiction and Authority of CIT(A) to Confirm the Disallowance Post Rectification Order u/s 154
During the appellate proceedings, the assessee highlighted a rectification order u/s 154 by the ITO, which resolved the disputed income, leading the assessee to seek withdrawal of the appeal. However, the CIT(A) proceeded to confirm the disallowance, stating that the rectification order did not alter the fact that contributions were paid late according to Section 36(1)(va). The CIT(A) invoked jurisdiction u/s 251(2) and issued a show-cause notice to the assessee, who failed to respond, leading to the confirmation of the disallowance.

Issue 3: Applicability of Amendments to Section 36(1)(va) and Section 43B by the Finance Act, 2021
The assessee argued that the amendment to Section 36(1)(va) by the Finance Act, 2021, effective from 1st April 2021, should not apply to the assessment year 2018-19. The tribunal agreed, noting that the explanatory memorandum to the Finance Act clearly states that the amendments apply from the assessment year 2021-22 onwards. The tribunal also referenced consistent decisions from various benches and the Karnataka High Court, which supported the view that contributions made before the due date of filing the return of income u/s 139(1) should not be disallowed under Section 43B read with Section 36(1)(va).

Conclusion:
The tribunal concluded that the employees' contributions to ESI and PF, deposited before the due date of filing the return of income u/s 139(1), should not be disallowed. The tribunal directed the deletion of the addition of Rs. 22,55,649/- made by the CPC, thus allowing the appeal of the assessee. The tribunal emphasized the binding nature of the Rajasthan High Court's decisions and clarified that the amendments by the Finance Act, 2021, do not apply retrospectively to the assessment year 2018-19.

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