ITAT rules in favor of assessee on ESI & PF contributions timing, previous decisions cited

The ITAT ruled in favor of the assessee, holding that the disallowance of employees' contribution to ESI and PF was not justified as the payments were made before the due date of filing the return of income. The ITAT allowed both appeals, emphasizing that the issue was covered by previous decisions favoring the assessee. Consequently, the additions made by disallowing delayed payments were deleted.

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Issues:
Addition made to the income of the assessee by disallowing delayed payments of employees' contribution to ESI and PF under section 36(1)(va) of the Income Tax Act.

Analysis:
The appeals were filed against separate orders of the Commissioner of Income Tax (Appeals) relating to assessment years 2018-19 & 2019-20. The only issue in the appeals was the addition made to the income of the assessee by disallowing delayed payments of employees' contribution to ESI and PF under section 36(1)(va) of the Act. The Commissioner upheld the addition based on various decisions and amendments to the Act. The amendment by the Finance Act, 2021, clarified that the due date for payment of employees' contribution to ESI and PF was not governed by section 43B but by the respective Acts' due dates. Despite the assessee's arguments citing previous court decisions in their favor, the addition was upheld.

The ITAT had consistently ruled in favor of the assessee in similar cases, holding that the amendment to section 36(1)(va) by the Finance Act, 2021, was prospective. In a specific case, the ITAT held that the jurisdictional High Court had previously allowed deductions for employees' contributions if paid by the due date of filing the return of income under section 139(1) of the Act. Therefore, the ITAT concluded that the amendment could not be applied retrospectively and directed the AO to allow the claim of the assessee.

In line with previous decisions, the ITAT dismissed the contention that the amendment to section 36(1)(va) was retrospective. Since the employees' contributions to ESI and PF were paid before the due date of filing the return of income, the disallowance made under section 36(1)(va) was deleted. The ITAT allowed both appeals of the assessee, emphasizing that the issue was squarely covered by previous decisions in favor of the assessee.

In conclusion, the ITAT ruled in favor of the assessee, emphasizing that the disallowance of employees' contribution to ESI and PF was not justified as the payments were made before the due date of filing the return of income. The appeals were allowed, and the additions made by disallowing the delayed payments were deleted.

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