2021 (12) TMI 691 - AT - Income Tax

Tribunal allows deduction for late PF/ESI contributions, grants interest relief under tax laws

The Tribunal ruled in favor of the assessee regarding the disallowance of employees' contribution to PF and ESI made beyond the due date, holding that ... Late remittance of employees’ contribution to PF and ESI - difference between the returned income and the assessed income u/s 143(1) - HELD THAT:- Bangalore Bench of the Tribunal in the case of M/s. Shakuntala Agarbathi Company [2021 (10) TMI 1196 - ITAT BANGALORE] by following the dictum laid down by the Hon’ble jurisdictional High Court in the case of Essae Teraoka Pvt. Ltd Vs. DCIT [2014 (3) TMI 386 - KARNATAKA HIGH COURT]¸ had held that the assessee would be entitled to deduction of employees’ contribution to PF and ESI provided that the payments were made prior to the due date of filing of the return of income u/s 139(1) of the I.T.Act. It was further held by the ITAT that amendment by Finance Act, 2021, to section 36[1][va] and 43B of the Act is not clarificatory. The amended provisions of section 43B as well as 36(1)(va) of the I.T.Act are not applicable for the assessment year under consideration.Accordingly, we direct the A.O. to grant deduction in respect of employees' contribution to ESI since the assessee has made payment before the due date of filing of the return of income u/s 139(1) - Decided in favour of assessee. Issues:1. Disallowance of PF and ESI contribution of employees paid beyond the due date under section 36(1)(va) read with section 43B of the Act.2. Applicability of interest under section 234B and 234C of the Act.Issue 1: Disallowance of PF and ESI Contribution:The appeal concerned the disallowance of employees' contribution to PF and ESI made by the assessee beyond the due date under section 36(1)(va) read with section 43B of the Income Tax Act, 1961. The assessee contended that the payments were made before the due date of filing the return under section 139(1) of the Act and therefore should be allowed as deductions. The CIT(A) upheld the disallowance, citing the amendment by Finance Act, 2021, as clarificatory and retrospective. However, the Tribunal, following the decision of the Hon'ble jurisdictional High Court, ruled in favor of the assessee. It held that the employees' contribution paid before the due date of filing the return is an allowable deduction, and the disallowance by the Assessing Officer was deleted.Issue 2: Applicability of Interest under Section 234B and 234C:The second issue revolved around the applicability of interest under section 234B and 234C of the Act. The assessee argued that the Assessing Officer had erred in computing the interest and failed to consider that the business commenced in November 2016. The assessee contended that interest under section 234C should have been calculated for only two quarters, giving credit for subsequent payments. The Tribunal, after considering the submissions, directed the Assessing Officer to grant deduction in respect of employees' contribution to ESI since the payment was made before the due date of filing the return of income under section 139(1) of the Act. Consequently, the appeal filed by the assessee was allowed, and the disallowance made by the Assessing Officer was deleted.In conclusion, the Tribunal's judgment favored the assessee on both issues, allowing the deduction of employees' contribution to PF and ESI and directing the proper calculation of interest under sections 234B and 234C of the Income Tax Act, 1961. The decision was based on the interpretation of relevant legal provisions and precedents set by the Hon'ble jurisdictional High Court, ensuring a fair and just outcome in the matter.