2021 (12) TMI 1042 - AT - Income Tax

Tribunal Overturns Disallowances on ESI & PF Contributions | Precedent-Based Decision

The Tribunal found the disallowances of employees' contributions to ESI & PF made by the Assessing Officer and upheld by the Commissioner of Income ... Deposit of employees’ contributions qua ESI & PF after the due date - deposit before the due date of filing of return of income u/s.139(1) - HELD THAT:- We may observe that the issue related to the employees’ contributions qua ESI & PF involved in the present appeal is squarely covered by the decision of coordinate bench of the Tribunal in VINKO AUTO INDUSTRIES LIMITED VERSUS DCIT, CPC, BANGALORE. [2021 (12) TMI 574 - ITAT AMRITSAR] wherein the Tribunal has deleted the disallowances made by the AO on account of delay in depositing the employees’ contribution towards ESI & PF as the same were deposited later than the prescribed time in the relevant acts but prior to the filling of the Return u/s.139(1). Disallowances qua empoyeess’ contribution towards PF and ESI, sustained by the Ld. CIT(A) stands deleted. - Decided in favour of assessee. Issues Involved:Appeals against CIT(A) orders regarding disallowance of employees' contributions to ESI & PF after due date but before filing return u/s.139(1) - Applicability of Section 43B, amended provisions of Section 36(1)(va) and Section 43B by Finance Act, 2021 - Retrospective application of amendments.Analysis:1. Disallowance of Employees' Contributions:The appeals were filed against CIT(A) orders upholding disallowances made by AO for employees' contributions to ESI & PF deposited after the due date but before filing the return u/s.139(1) of the Income Tax Act, 1961. The Tribunal noted a previous decision where disallowances were deleted for similar cases.2. Applicability of Section 43B and Amended Provisions:The CIT(A) based disallowances on non-applicability of Section 43B to employees' share of PF & ESI and the amended provisions of Section 36(1)(va) and Section 43B by Finance Act, 2021. The Tribunal referred to High Court judgments supporting the assessee's right to claim deductions for employees' share if deposited before filing the return u/s.139(1).3. Retrospective Application of Amendments:The CIT(A) considered the amendments as clarificatory and having retrospective effects, applying to previous assessment years. However, the Tribunal, supported by ITAT decisions and CBDT Memorandum, held that the amendments were prospective from 1st April 2021 onwards, rendering the CIT(A)'s determination unsustainable.Conclusion:The Tribunal found the disallowances made by the AO and confirmed by the CIT(A) not sustainable. Consequently, the disallowances were deleted, leading to the deletion of interest charged by the AO under sections 234A, 234B & 234C. The appeals of the assessee were allowed based on the precedent set by a Coordinate Bench of the Tribunal, leading to the deletion of disallowances for employees' contributions towards PF and ESI.