2022 (2) TMI 179 - AT - Income Tax

Tribunal allows appeal, orders deletion of addition. Pre-2021 precedents apply. No disallowance if deposit before due date.

The Tribunal allowed the appeal, directing the deletion of the addition of Rs. 3,50,650. The judgment emphasized the application of legal precedents ... Disallowance on account of late deposit of employees' share of EPF and ESI but before the due date u/s. 139 - HELD THAT:- It is an admitted position that the assessee did deduct employees' share of EPF and ESI but paid the same after the due date under the respective legislations but before the time for filing return u/s.139(1). This issue is no more res integra in view of several judgments allowing deduction u/s. 36(1)(va) of employees' share of contribution deposited after due date under the respective Acts but before the date prescribed u/s. 139 of the Act. As in CIT vs. Nipso Polyfabriks Ltd.[2012 (11) TMI 592 - HIMACHAL PRADESH HIGH COURT] has held that there exists no difference between employees' or employer's contribution and both are to be allowed as deduction if deposited before the due date. Finance Act, 2021 has inserted Explanation 2 below section 36(1)(va) providing that the provisions of section 43B shall not apply for the purpose of determining the due date under this clause w.e.f. 01.04.2021. The effect of this amendment is that if the amount of employees' contribution towards EPF, ESI, etc is delayed by an employer beyond the due date under the respective Acts, the disallowance will be called for notwithstanding the fact that it was deposited before the due date u/s.139 - The Memorandum explaining the provisions of the Finance Bill, 2021, provides that this amendment will take effect from 1st April, 2021 and will, accordingly, apply in relation to assessment year 2021-2022 and subsequent assessment years. Since the assessment year under consideration, namely, 2018-19 is anterior to the amendment carried out with effect from A.Y. 2021-22. Instant case thereby not warranting any disallowance since the amount in question was admittedly deposited before due date u/s.139(1) of the Act. The addition is therefore, directed to be deleted. - Decided in favour of assessee. Issues:Confirmation of disallowance of late deposit of employees' share of EPF and ESI before the due date u/s. 139 of the Income-tax Act, 1961.Analysis:The appeal pertains to the confirmation of disallowance of Rs. 3,50,650 by the AO on account of late deposit of employees' share of EPF and ESI before the due date u/s. 139 of the Income-tax Act, 1961. The CIT(A) upheld the disallowance under section 36(1)(va) of the Act. The key contention was that the amount was deposited after the due date under the respective legislations but before the time for filing return u/s. 139(1) of the Act.Upon review, it was noted that various judgments have allowed deduction u/s. 36(1)(va) for employees' share of contribution deposited after the due date under the respective Acts but before the date prescribed u/s. 139 of the Act. Notably, the Himachal Pradesh High Court in CIT vs. Nipso Polyfabriks Ltd. (2013) 350 ITR 327 (HP) clarified that there is no distinction between employees' or employer's contribution for deduction purposes if deposited before the due date.Furthermore, the Finance Act, 2021 introduced Explanation 2 below section 36(1)(va) to exclude the application of section 43B for determining the due date under this clause from 01.04.2021 onwards. This implies that if the employer delays the employees' contribution towards EPF, ESI, etc beyond the due date under the respective Acts, disallowance is warranted, even if deposited before the due date u/s. 139 of the Act. However, since the assessment year in question is 2018-19, predating the 2021 amendment, the legal position established by previous judgments, including CIT vs. Nipso Polyfabriks Ltd., applies, and no disallowance is justified if the amount was deposited before the due date u/s. 139(1) of the Act.In conclusion, the Tribunal ruled in favor of the appellant, directing the deletion of the addition. The judgment emphasized the applicability of the law as per precedents predating the 2021 amendment, thereby allowing the appeal.Judgment:The appeal is allowed, and the addition of Rs. 3,50,650 is directed to be deleted. The order was pronounced in the Open Court on 31st January, 2022.