2021 (12) TMI 878 - AT - Income Tax

Tribunal grants deduction for employees' PF/ESI contributions made before filing return

The Tribunal allowed the appeal filed by the assessee, directing the Assessing Officer to grant deduction for employees' contribution to PF and ESI made ... Late remittance of employees’ contribution to PF and ESI - Payment prior to the due date of filing of the return of income u/s 139(1) - HELD THAT:- Tribunal in the case of M/s. Shakuntala Agarbathi Company Vs. DCIT [2021 (10) TMI 1196 - ITAT BANGALORE] by following the dictum laid down in the case of Essae Teraoka Pvt. Ltd [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) - 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. Employees’ contribution paid by the assessee before the due date of filing of return of income u/s 139(1) of the I.T.Act is an allowable deduction. Accordingly, we decide this issue in favour of the assessee and the disallowance made by the AO is deleted. - Decided in favour of assessee. Issues:Disallowance of Employees Contribution to PF and ESIAnalysis:1. The assessee filed an appeal against the order of the CIT(A) regarding the disallowance of employees' contribution to PF and ESI amounting to Rs. 13,90,975 made beyond the due dates specified in the respective Acts but before filing the return under Section 139(1) of the Income-tax Act, 1961. The CIT(A) confirmed the disallowance, citing the amendment by Finance Act, 2021 as clarificatory and having retrospective operation.2. The assessee contended that the employees' contribution was remitted before the due date for filing the return u/s 139(1) of the I.T. Act, relying on the judgment of the Hon'ble jurisdictional High Court. The Tribunal, following the precedent set by the High Court, held that the assessee is entitled to deduction of employees' contribution to PF and ESI if paid before the due date of filing the return of income u/s 139(1) of the Act. The Tribunal also noted that the Finance Act, 2021 amendment is not clarificatory and does not have retrospective effect.3. The Tribunal emphasized that the amendment by Finance Act, 2021 to Sec.36(1)(va) and 43B of the Act is not applicable for the assessment year under consideration, i.e., A.Y. 2019-2020. Relying on various judicial pronouncements, the Tribunal 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 u/s 139(1) of the I.T. Act. Consequently, the disallowance made by the Assessing Officer was deleted, and the appeal filed by the assessee was allowed.4. The Tribunal's decision was based on the principle that the employees' contribution paid by the assessee before the due date of filing the return of income u/s 139(1) of the I.T. Act is an allowable deduction. By following the binding decision of the Hon'ble jurisdictional High Court, the Tribunal held in favor of the assessee, emphasizing that the amended provisions of section 43B and 36(1)(va) of the I.T. Act were not applicable for the relevant assessment year.5. The Tribunal's detailed analysis and reliance on judicial precedents, along with the interpretation of the Finance Act, 2021 amendment, provided a clear and comprehensive understanding of the legal issues involved in the disallowance of employees' contribution to PF and ESI. The decision highlighted the importance of timely payments and adherence to statutory provisions for claiming deductions under the Income-tax Act, 1961.