Tribunal permits deductions for delayed PF/ESI deposits before return filing; clarifies Finance Act amendments

The tribunal allowed the assessee's appeal, holding that deductions for delayed deposits of employee contributions towards PF/ESI are permissible if made before the due date for filing the return under Section 139(1). The tribunal emphasized the prospective applicability of the amendments introduced by the Finance Act, 2021 to Sections 36(1)(va) and 43B, providing certainty and rationalizing the provisions. The decision aligned with judicial precedents and aimed to reduce litigation, granting the assessee the deduction for the relevant assessment year.

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Issues Involved:
1. Allowability of deduction under Section 36(1)(va) read with Section 2(24)(x) of the Income-tax Act, 1961 for delayed deposit of employee contribution towards PF/ESI.
2. Applicability of amendments made by Finance Act, 2021 to Section 36(1)(va) and 43B of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Allowability of Deduction under Section 36(1)(va) read with Section 2(24)(x) for Delayed Deposit of Employee Contribution towards PF/ESI:

The assessee filed its return of income declaring a total income which included an addition of Rs. 11,20,461 due to delayed deposit of employee contributions towards PF/ESI. The AO invoked Section 36(1)(va) read with Section 2(24)(x) of the Income-tax Act, 1961, disallowing the deduction as the deposits were not made within the prescribed time under the relevant statute governing PF/ESI. The CIT(A) upheld this disallowance, referencing judicial decisions that allowed deductions if deposits were made before the due date for filing the return under Section 139(1), but noted that this was negated by the Finance Act, 2021 amendments.

The assessee argued that the employee share of PF/ESI should be allowed as a deduction if deposited before the due date for filing the return under Section 139(1). The tribunal, considering its own previous decision in the assessee's case for AY 2018-19 and other judicial precedents, held that if the employee share of PF/ESI is deposited before the due date for filing the return under Section 139(1), the deduction should be allowed under Section 36(1)(va).

2. Applicability of Amendments made by Finance Act, 2021 to Section 36(1)(va) and 43B:

The Finance Act, 2021 introduced amendments to Section 36(1)(va) and 43B, clarifying that the provisions of Section 43B do not apply to employee contributions to PF/ESI. The tribunal noted that the amendments were stated to be applicable from AY 2021-22 onwards, as per the Memorandum to Finance Bill, 2021, which aimed to provide certainty and rationalize the provisions.

The tribunal observed that several High Courts, including the jurisdictional Allahabad High Court, had interpreted the provisions to allow deductions for delayed deposits made before the due date for filing the return under Section 139(1). The tribunal emphasized the principle of consistency and judicial discipline, following the Allahabad High Court's decision in Sagun Foundry Private Limited, which allowed such deductions.

The tribunal rejected the Revenue's contention that the amendments were clarificatory and retrospective, citing the explicit prospective applicability stated in the Finance Bill. The tribunal also highlighted the Government's policy to reduce litigation and provide certainty in tax matters.

Conclusion:

The tribunal allowed the assessee's appeal, directing the AO to verify the challans evidencing the deposit of the employee share of PF/ESI before the due date for filing the return under Section 139(1). The tribunal held that the amendments by Finance Act, 2021 are prospective and applicable from AY 2021-22 onwards, and thus, the assessee is entitled to the deduction for AY 2019-20.

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