Tribunal directs deletion of CPC addition for ESI/PF, citing Rajasthan High Court precedent. Finance Act 2021 not retrospective.

The Tribunal allowed the appeal, directing the deletion of the addition of Rs. 11,81,570/- made by the CPC towards employees' contribution to ESI and PF. The contributions were deemed to be deposited before the due date of filing the return of income under Section 139(1), in alignment with precedents set by the Rajasthan High Court. The Tribunal emphasized that the amendments introduced by the Finance Act, 2021, cannot be applied retrospectively to the assessment year 2019-20.

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Issues Involved:
1. Confirmation of additions in respect of employees' contribution towards ESI/PF.
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.
4. Scope of adjustments under Section 143(1) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Confirmation of Additions in Respect of Employees' Contribution Towards ESI/PF:
The assessee filed its return of income for the assessment year 2019-20, declaring a total income of Rs. 1,24,74,138/-. The Central Processing Centre (CPC) made a disallowance of Rs. 11,81,570/- towards employees' contribution to ESI and PF, as these were not paid within the prescribed due dates under Section 36(1)(va) of the Act. The CIT(A) confirmed this disallowance, leading to the present appeal.

2. Applicability of Section 36(1)(va) and Section 43B of the Income Tax Act:
The assessee argued that the contributions were deposited before the due date for filing the return of income under Section 139(1), relying on the decisions of the Rajasthan High Court in CIT vs. Rajasthan State Beverages Corporation Ltd. and CIT vs. State Bank of Bikaner and Jaipur. The Tribunal noted that the employees' contributions were indeed deposited before the due date of filing the return, aligning with the precedents set by the Rajasthan High Court, which held that such contributions cannot be disallowed if paid before the due date of filing the return.

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, clarifies that employees' contributions must be paid within the due dates specified in the respective legislation. However, the Tribunal observed that the explanatory memorandum to the Finance Act, 2021, explicitly states that the amendments would apply from 1st April 2021 and to assessment years 2021-22 onwards. Therefore, the amendments cannot be applied retrospectively to the assessment year 2019-20.

4. Scope of Adjustments Under Section 143(1) of the Income Tax Act:
The Tribunal examined whether the disallowance made by the CPC under Section 143(1) was within the scope of prima facie adjustments. It concluded that since the contributions were deposited before the due date of filing the return, the disallowance was not justified. The Tribunal emphasized that the CIT(A) should have followed the jurisdictional Rajasthan High Court's decisions, which are binding on the appellate authorities and the Assessing Officer within its jurisdiction.

Conclusion:
The Tribunal directed the deletion of the addition of Rs. 11,81,570/- made by the CPC towards the employees' contribution to ESI and PF, as these were deposited before the due date of filing the return of income under Section 139(1). The appeal of the assessee was allowed, and the order was pronounced in the open Court on 15/11/2021.

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