2022 (1) TMI 229 - AT - Income Tax

Tax Tribunal rules in favor of assessee, disallows adjustments under Section 143(1) and late EPF/ESI payments

The Tribunal held that the adjustments made under Section 143(1) of the Income Tax Act were not sustainable as they were outside the scope of the section. ... Deductibility of employee contributions to EPF and ESI under Section 36(1)(va) - Effect of late payment prior to filing of return on disallowance under Section 43B - Prospective operation of Finance Act, 2021 Explanation 5 - Binding effect of decisions of the jurisdictional High Court on appellate authoritiesDeductibility of employee contributions to EPF and ESI paid before filing return - Interpretation of Section 36(1)(va) vis-a -vis Section 43B - Prospective effect of Explanation 5 of Finance Act, 2021 - Precedential value of jurisdictional High Court decisions - Whether employer's disallowance under section 36(1)(va) in respect of employees' contributions to EPF/ESI, deposited after the statutory due date but before filing the return of income, is sustainable. - HELD THAT: - The Tribunal held that where employees' contributions to EPF and ESI, though deposited after the statutory due date under the respective enactments, were paid before filing the return of income under section 139(1), such amounts cannot be disallowed under section 36(1)(va) read with section 43B. The decision follows earlier orders of this Bench and other Benches which applied the binding decisions of the jurisdictional High Court favouring the assessee on identical facts. The Tribunal noted that Explanation 5 inserted by the Finance Act, 2021 has prospective effect from 01.04.2021 and therefore does not govern assessment years prior to that date; consequently the post 2021 legislative change could not be applied retrospectively to justify the disallowance. In view of the binding precedents of the jurisdictional High Court and consistent Tribunal rulings, the additions made by the Assessing Officer and sustained by the CIT(A) were deleted. [Paras 8, 9, 11]Addition/disallowance on account of delayed deposit of employees' contribution to EPF and ESI (made before filing return of income) is deleted; appeals allowed.Final Conclusion: Following earlier decisions of this Bench and binding rulings of the jurisdictional High Court, the Tribunal deleted the disallowances sustained by the CIT(A) in respect of employees' EPF and ESI contributions deposited prior to filing of the return; the appeals are allowed. Issues Involved:1. Legality of adjustments made under Section 143(1) of the Income Tax Act.2. Disallowance of Rs. 2,17,360/- in respect of ESIC and PF under Section 36(1)(va) of the Income Tax Act, 1961.Issue-wise Detailed Analysis:1. Legality of Adjustments Made Under Section 143(1):The assessee contended that the adjustments made by the Assessing Officer (A.O.) in the intimation under Section 143(1) were outside the purview of Section 143(1)(a). The CIT(A) confirmed the A.O.'s action, which the assessee argued was 'illegal, unjustified, arbitrary and against the facts of the case.' The Tribunal considered the submissions and noted that the issue was covered by the ITAT Jodhpur Bench's order in similar cases, specifically citing the cases of Mohangarh Engineers and Construction Company Vs. DCIT and Bikaner Ceramics Private Limited Vs. ADIT. The Tribunal found that the adjustments made under Section 143(1) were not sustainable as they were not within the scope of the section.2. Disallowance of Rs. 2,17,360/- in Respect of ESIC and PF Under Section 36(1)(va):The assessee argued that the disallowance of Rs. 2,17,360/- for late payments towards EPF and ESI under Section 36(1)(va) was unjustified since the payments were made before the filing of the return under Section 139(1). The CIT(A) had sustained the disallowance, but the Tribunal referenced several ITAT decisions, including those of the Jodhpur Bench and the Kolkata Bench, which had ruled in favor of the assessee in similar circumstances. The Tribunal highlighted that the contributions were deposited before the due date of filing the return, and thus, the disallowance was not warranted. The Tribunal also noted that the amendment introduced by the Finance Act, 2021, which provided for disallowance of such contributions if paid after the due date under the respective statutes, was not applicable retrospectively.Conclusion:The Tribunal concluded that the disallowances made by the A.O. and sustained by the CIT(A) were not justified. The Tribunal followed the precedent set by various ITAT benches and the jurisdictional High Court, which held that contributions made before the due date of filing the return should not be disallowed. Consequently, the Tribunal allowed the appeals of the assessee, deleting the disallowances made on account of late payments towards EPF and ESI.