Employees' PF and ESI contributions deductible pre-return due date, Tribunal rules in favor

The Tribunal allowed the appeals, ruling in favor of deducting employees' contribution to PF and ESI paid before the due date of filing the return for the assessment years. The disallowance by the Assessing Officer was deleted, emphasizing the employees' contribution deduction based on judicial precedents and the prospective nature of the amendment by Finance Act, 2021.

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Issues involved:
Appeal against CIT(A) orders for assessment years 2018-2019 and 2019-2020 regarding disallowance of late remittance of employees' contribution to PF and ESI under respective Acts.

Analysis:

Issue 1: Disallowance of late remittance of employees' contribution
The assessee filed returns for the assessment years 2018-2019 and 2019-2020, declaring income and was served with intimation under section 143(1) of the Income Tax Act assessing a higher income due to disallowance of employees' contribution to PF and ESI. The CIT(A) held that only the employer's contribution is entitled to deduction under section 43B of the IT Act if paid before the due date of filing the return. The CIT(A) also noted the clarificatory amendment by Finance Act, 2021, with retrospective operation. However, the Tribunal, following a jurisdictional High Court decision, ruled that employees' contribution paid before the due date of filing the return is deductible, and the amendment is not clarificatory but prospective. The disallowance by the Assessing Officer was deleted, allowing the deduction for employees' contribution.

Issue 2: Judicial precedents and retrospective amendment
The Tribunal referred to the decision in the case of Essae Teraoka Pvt. Ltd Vs. DCIT and emphasized that the employees' contribution is deductible if paid before the due date of filing the return. The Tribunal disagreed with the view taken by another High Court and held that the amendment by Finance Act, 2021, altering the law adversely to the assessee, cannot be retrospective. Citing various Tribunal orders, the Tribunal concluded that the amendment is prospective and not applicable to the relevant assessment year, thus directing the AO to grant deduction for employees' contribution paid before the due date of filing the return.

Conclusion:
The Tribunal allowed the appeals filed by the assessee, ruling in favor of deducting employees' contribution to PF and ESI paid before the due date of filing the return for the assessment years under consideration. The disallowance made by the Assessing Officer was deleted, emphasizing the applicability of the employees' contribution deduction based on judicial precedents and the prospective nature of the amendment by Finance Act, 2021.

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