Tribunal allows appeal, permits deduction for delayed PF and ESI contributions under Finance Act 2021

The Tribunal allowed the appeal of the assessee, deleting the disallowance of Rs. 2,59,090/- for delayed payment of employees' contribution to Provident Fund (PF) and Employees' State Insurance (ESI). The Tribunal held that the amendment by the Finance Act, 2021, clarifying the applicability of Section 43B, was prospective. Therefore, payments made before the due date of filing the return under section 139(1) should be allowed as deductions. The Tribunal followed the principle favoring the assessee in conflicting decisions and directed the Assessing Officer to allow the deduction for the employees' contributions to PF and ESI.

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Issues Involved:
Disallowance of Rs. 2,59,090/- on account of delayed payment of employees' contribution to PF and ESI.

Issue-wise Detailed Analysis:

1. Disallowance of Rs. 2,59,090/- on account of delayed payment of employees' contribution to PF and ESI:
The assessee appealed against the disallowance of Rs. 2,59,090/- made by the Assessing Officer (AO) and confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)] due to delayed payment of employees' contribution to Provident Fund (PF) and Employees' State Insurance (ESI). The payments were made after the due dates prescribed under the relevant statutes but before the due date for filing the return under section 139(1) of the Income Tax Act, 1961.

Arguments and Judicial Precedents:
The Tribunal referred to a similar case, Lumino Industries Limited, where the issue of delayed payment of employees' contribution to PF and ESI was discussed. The AO disallowed the payments based on CBDT Circular No. 22/2015 and judicial pronouncements, including the Hon'ble Gujarat High Court's decision in the case of Gujarat State Road Transport and ITAT Mumbai's decision in LKP Securities. These precedents held that employees' contributions to PF/ESI can only be allowed if deposited within the due date prescribed under the respective Acts, not just before the due date for filing the return of income.

The CIT(A) upheld the AO's action, considering the amendment brought by the Finance Act, 2021, which clarified that Section 43B does not apply to Section 36(1)(va) and is deemed never to have applied. The CIT(A) viewed this amendment as clarificatory and retrospective.

Assessee's Argument:
The assessee, represented by Shri Miraj D. Shah, contended that the amendment by the Finance Act, 2021, is prospective in nature. The assessee cited the Hon'ble Supreme Court's decision in M.M. Aqua Technologies Ltd. vs. CIT, Delhi, which held that a retrospective provision in a tax act cannot be presumed to be retrospective if it alters the law as it earlier stood. The assessee also referred to the Constitution Bench decision in CIT vs. Vatika Township Pvt. Ltd., emphasizing that amendments should be considered prospective unless explicitly stated otherwise.

Analysis and Conclusion:
The Tribunal examined the legislative intent behind the amendment brought by the Finance Act, 2021. The "Notes on Clauses" of the Finance Bill, 2021, explicitly stated that the amendments would take effect from 1st April 2021 and apply to the assessment year 2021-22 and subsequent years. This indicated that the amendment was prospective.

The Tribunal observed that prior to this amendment, the Hon'ble Jurisdictional Calcutta High Court had consistently held that payments made before the due date of filing the return under section 139(1) should be allowed as deductions. The Tribunal also noted that the Hon'ble Delhi High Court's decision in Bharat Hotels Ltd., which favored the revenue, did not consider the earlier Division Bench judgment in CIT vs. Aimil Ltd., which was in favor of the assessee.

Considering the binding decisions of the Hon'ble Jurisdictional Calcutta High Court and the principle that in cases of conflicting decisions, the view favoring the assessee should be followed, the Tribunal concluded that the amendment by the Finance Act, 2021, was prospective. Consequently, the Tribunal directed the AO to allow the deduction for the employees' contribution to PF and ESI made before the due date of filing the return under section 139(1).

Final Judgment:
The Tribunal deleted the disallowance made by the AO and confirmed by the CIT(A) on account of delayed payment of employees' contribution towards PF and ESI. The appeal of the assessee was allowed.

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