Tribunal Allows Assessee's Appeal on Disallowed Contributions

The Tribunal allowed the assessee's appeal, overturning the disallowance of Rs. 81,824 towards delayed employee contributions to ESI and PF for the assessment year 2018-19. The Tribunal held that contributions made before the due date of filing the return under Section 139(1) cannot be disallowed under Section 43B or Section 36(1)(va). The Tribunal emphasized the prospective nature of the Finance Act, 2021 amendments, which do not apply retrospectively to the said assessment year.

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Issues Involved:
1. Confirmation of additions in respect of employees' contribution towards ESI/PF for the assessment year 2018-19.
2. Applicability of Section 36(1)(va) and Section 43B of the Income Tax Act.
3. Retrospective application of the amendment introduced by the Finance Act, 2021.

Detailed Analysis:

1. Confirmation of Additions in Respect of Employees' Contribution towards ESI/PF:
The assessee filed its return of income admitting a total income of Rs. 20,890, which was processed under Section 143(1) leading to a disallowance of Rs. 81,824 towards employees' contribution to ESI and EPF. The CIT(A), NFAC confirmed the disallowance based on the assessee's failure to pay the contributions within the prescribed due dates under Section 36(1)(va) of the Act. The assessee appealed against this order.

2. Applicability of Section 36(1)(va) and Section 43B:
The assessee argued that the contributions, though delayed, were deposited before the due date of filing the return of income, and thus, no disallowance should be made under Section 36(1)(va). The assessee relied on decisions from the Rajasthan High Court and other Tribunal benches, asserting that contributions made before the due date for filing returns should not be disallowed. The Revenue, however, maintained that the contributions were not made within the prescribed due dates and thus were rightly disallowed under Section 143(1)(a)(iv).

3. Retrospective Application of the Amendment Introduced by the Finance Act, 2021:
The Revenue argued that the amendment to Section 36(1)(va) by the Finance Act, 2021, which clarifies that employees' contributions must be paid by the due dates mentioned in the respective legislation, is declaratory and thus applicable retrospectively. However, the Tribunal noted that the explanatory memorandum to the Finance Act, 2021, explicitly states that the amendments apply from 1st April 2021 and onwards, making them inapplicable to the assessment year 2018-19.

Tribunal's Findings:
The Tribunal referred to the consistent decisions of the Rajasthan High Court, which held that contributions paid before the due date of filing the return under Section 139(1) cannot be disallowed under Section 43B or Section 36(1)(va). The Tribunal emphasized that the CIT(A) should have followed the jurisdictional High Court's decisions, which are binding. The Tribunal also noted that the Finance Act, 2021 amendments are prospective and do not apply to the assessment year 2018-19.

Conclusion:
The Tribunal directed the deletion of the addition of Rs. 81,824 made by the CPC towards the delayed deposit of employees' contributions to ESI and PF, as these were paid before the due date of filing the return of income under Section 139(1). The appeal of the assessee was allowed, and the disallowance was overturned.

Order Pronouncement:
The order was pronounced in the open Court on 25/11/2021.

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