Tribunal rules in favor of assessee, deleting disallowances under section 36(1)(va) for ESI/PF contributions.

The Tribunal allowed the appeals filed by the assessee, directing the deletion of disallowances made by the Centralized Processing Centre for the assessment years 2018-19 and 2019-20. The disallowances under section 36(1)(va) for employees' contributions towards ESI and PF were deemed unjustified, citing judicial precedents and the prospective nature of the amendment by the Finance Act, 2021. The order was pronounced on December 15, 2021.

---

---

Issues Involved:
1. Disallowance of employees' contribution towards ESI and PF under section 36(1)(va) of the Income Tax Act, 1961.
2. Applicability of the amendment brought by the Finance Act, 2021 to section 36(1)(va) and section 43B.

Detailed Analysis:

Issue 1: Disallowance of Employees' Contribution towards ESI and PF

The assessee filed returns for the assessment years 2018-19 and 2019-20, which were processed under section 143(1) of the Income Tax Act, 1961. The Centralized Processing Centre (CPC) made disallowances towards employees' contributions to ESI and PF, citing delays in deposits beyond the due dates specified in the relevant statutes. The assessee contended that these contributions were deposited before the due date for filing the return of income under section 139(1), and thus should not be disallowed.

The assessee relied on several judicial precedents, including:
- CIT Vs. Rajasthan State Beverages Corporation Ltd.: The Hon'ble Rajasthan High Court ruled that contributions paid before the due date of filing returns under section 139(1) cannot be disallowed, a view upheld by the Hon'ble Supreme Court.
- CIT Vs. M/s Nipso Polyfabriks Ltd.: The Hon'ble Himachal Pradesh High Court held similar views.
- CIT Vs. Rai Agro Industries Ltd.: The Hon'ble Punjab & Haryana High Court also supported this interpretation.

The Tribunal, referencing these decisions, noted that the employees' contributions were indeed deposited before the due date for filing returns under section 139(1). Therefore, the disallowance made under section 36(1)(va) was not justified.

Issue 2: Applicability of the Amendment by the Finance Act, 2021

The Revenue argued that the amendment brought by the Finance Act, 2021, clarifying that employees' contributions must be deposited within the due dates specified in the respective statutes, should apply retrospectively. However, the Tribunal observed that the explanatory memorandum to the Finance Act, 2021, explicitly states that the amendments would take effect from April 1, 2021, and apply to assessment years 2021-22 and onwards.

The Tribunal referred to consistent decisions across various benches, including the ITAT Bangalore Bench in Shri Gopalkrishna Aswini Kumar vs. ACIT, which held that the amendment is prospective and not applicable to earlier assessment years.

Conclusion:

Given the judicial precedents and the prospective nature of the amendment by the Finance Act, 2021, the Tribunal directed the deletion of the disallowances made by the CPC for both assessment years 2018-19 and 2019-20. The appeals filed by the assessee were allowed, and the disallowances under section 36(1)(va) were deleted.

Order Pronounced:

The order was pronounced on December 15, 2021, allowing both appeals filed by the assessee.

---