2022 (1) TMI 873 - AT - Income Tax

Tribunal allows appeal on employee contribution addition under Section 36(1)(va)

Sh. Virendra Kumar Ahuja Versus The ITO, Ward-2 (3), Jaipur.

The Tribunal allowed the appeal of the assessee and directed the deletion of the addition of Rs. 2,24,135 under Section 36(1)(va) for delayed payment of ... Addition u/s 36(1)(va) on account of delayed payment of employees contribution towards PF & ESI - amount has been deposited within the grace period of 5 days as provided under the relevant Act - Scope of amendment - HELD THAT:- In the instant case, admittedly and undisputedly, the employees’ contribution to ESI and PF collected by the assessee from its employees have been deposited well before the due date of filing of return of income u/s 139(1) of the Act. Further, the ld D/R has referred to the explanation to section 36(1)(va) and section 43B by the Finance Act, 2021 and has also referred to the rationale of the amendment as explained by the Memorandum in the Finance Bill, 2021, however, we find that there are express wordings in the said memorandum which says “these amendments will take effect from 1st April, 2021 and will accordingly apply to assessment year 2021-22 and subsequent assessment years”. In the instant case, the impugned assessment year is assessment year 2014-15 and therefore, the said amended provisions cannot be applied in the instant case. See SHRI GOPALAKRISHNA ASWINI KUMAR [2021 (10) TMI 952 - ITAT BANGALORE]. Addition towards the deposit of the employees’s contribution towards ESI and PF paid before the due date of filing of return of income u/s 139(1) of the Act is hereby directed to be deleted. - Decided in favour of assessee. Issues Involved:1. Addition of Rs. 2,24,135/- under Section 36(1)(va) on account of delayed payment of employees' contribution towards PF and ESI.Detailed Analysis:Issue 1: Addition of Rs. 2,24,135/- under Section 36(1)(va) on account of delayed payment of employees' contribution towards PF and ESIFacts of the Case:The assessee filed its return of income on September 30, 2014, declaring a total income of Rs. 7,37,870/-. The case was selected for scrutiny, and the Assessing Officer (AO) made a disallowance of Rs. 2,24,135/- towards employees' contribution to PF and ESI due to delayed payment. The CIT(A), NFAC confirmed the disallowance under Section 143(3) of the Act, leading to the appeal by the assessee.Assessee's Arguments:The assessee argued that although there was a delay in depositing the employees' contribution towards PF and ESI from the due dates mentioned in the respective Acts, the contributions were deposited before the due date of filing the return of income. The assessee cited several judicial precedents, including the Rajasthan High Court's decisions in CIT vs. Rajasthan State Beverages Corporation Ltd. (2017) and CIT vs. State Bank of Bikaner and Jaipur (2014), which supported the view that no disallowance should be made if the contributions are deposited before the due date of filing the return of income. The assessee also argued that the explanation added to Section 36(1)(va) by the Finance Act, 2021, applies from the assessment year 2021-22 and not to the impugned assessment year 2014-15.Revenue's Arguments:The Revenue contended that the payment of employees' contribution of PF/ESI amounting to Rs. 2,24,135/- was not made within the prescribed due date under Section 36(1)(va) of the Act. The Revenue also argued that the amendment brought by the Finance Act, 2021, which clarified that employees' contribution to specified funds would not be allowed as a deduction if there is any delay in deposit, should be considered as clarificatory and applicable retrospectively.Tribunal's Findings:The Tribunal relied on the series of decisions rendered by the Hon'ble Rajasthan High Court, starting from CIT vs. State Bank of Bikaner & Jaipur, which held that where the PF and ESI dues are paid after the due date under the respective statutes but before filing the return of income under Section 139(1), the same cannot be disallowed under Section 43B read with Section 36(1)(va) of the Act. The Tribunal noted that the CIT(A) should have followed the jurisdictional Rajasthan High Court's decisions, which are binding on all appellate authorities and the Assessing Officer under its jurisdiction in Rajasthan.The Tribunal also considered the explanatory memorandum to the Finance Act, 2021, which explicitly stated that the amendments would take effect from April 1, 2021, and apply to assessment year 2021-22 and subsequent years. Therefore, the amended provisions could not be applied to the assessment year 2014-15.Conclusion:In light of the binding decisions of the Rajasthan High Court and the explicit wording of the explanatory memorandum to the Finance Act, 2021, the Tribunal directed the deletion of the addition of Rs. 2,24,135/- towards the deposit of employees' contribution to ESI and PF, as the contributions were paid before the due date of filing the return of income under Section 139(1) of the Act.Result:The appeal of the assessee was allowed, and the addition of Rs. 2,24,135/- was deleted.Order Pronounced:The order was pronounced in the open Court on November 9, 2021.