2022 (2) TMI 1202 - AT - Income Tax

Tribunal allows appeals, deletes disallowance for late payment of ESI/PF contributions. Finance Act amendments not retrospective.

Deepak Hassani, Kishore Kumar Hassani, Prakash Hassani, Kishangarh Granites Pvt. Ltd., Versus A.C.I.T., Circle-1, Ajmer.

The Tribunal allowed the appeals, directing the deletion of the disallowance of Rs. 2,70,396/- for late payment of employee contributions to ESI and PF. ... Disallowance of Employee's contribution of ESI and PF - amount paid to the said funds' accounts late but before the due date of filing of return u/s 139(1) - 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 2018-19 and therefore, the said amended provisions cannot be applied in the instant case. See SHRI GOPALAKRISHNA ASWINI KUMAR [2021 (10) TMI 952 - ITAT BANGALORE]. Thus addition by way of adjustment while processing the return of income u/s 143(1) so made by the CPC towards the deposit of the employees’s contribution towards ESI and PF though 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. Confirmation of disallowance of Rs. 2,70,396/- for late payment of employee's contribution to ESI and PF.2. Applicability of recent amendments to Section 36(1)(va) and Section 43B by the Finance Act, 2021.3. Charging of interest under Sections 234B and 234C.Detailed Analysis:Issue 1: Confirmation of Disallowance of Rs. 2,70,396/- for Late Payment of Employee's Contribution to ESI and PFThe primary issue in the appeals was the confirmation of disallowance of Rs. 2,70,396/- made by the Assessing Officer (A.O.) under Section 36(1)(va) of the Income Tax Act, 1961, due to late payments towards Employee Provident Fund (EPF) and Employee State Insurance (ESI). The payments were made after the due dates specified in the respective Acts but before the due date for filing the return of income under Section 139(1).The appellant argued that the contributions were deposited before the due date for filing the return of income and cited precedents from the Rajasthan High Court, including CIT vs. Rajasthan State Beverages Corporation Ltd. and CIT vs. State Bank of Bikaner and Jaipur, which held that such contributions should not be disallowed if deposited before the return filing due date. The Tribunal agreed with the appellant, referencing similar decisions from other jurisdictions, and directed the deletion of the disallowance.Issue 2: Applicability of Recent Amendments to Section 36(1)(va) and Section 43B by the Finance Act, 2021The Revenue argued that the recent amendments to Sections 36(1)(va) and 43B by the Finance Act, 2021, which clarified that employee contributions to specified funds must be deposited within the due dates specified in the respective Acts, should apply retrospectively. However, the Tribunal noted that the explanatory memorandum to the Finance Act, 2021, explicitly stated that these amendments would take effect from April 1, 2021, and apply to assessment years 2021-22 and onwards. Since the assessment year in question was 2018-19, the Tribunal held that the amendments could not be applied retrospectively.Issue 3: Charging of Interest under Sections 234B and 234CThe appellants also contested the charging of interest under Sections 234B and 234C, arguing that interest should be charged on the returned income, not the assessed income. The Tribunal found this ground to be consequential, as the primary disallowance had been deleted. Therefore, no further adjudication on this issue was necessary.Conclusion:The Tribunal allowed the appeals, directing the deletion of the disallowance of Rs. 2,70,396/- for late payment of employee contributions to ESI and PF, and held that the recent amendments to Sections 36(1)(va) and 43B by the Finance Act, 2021, could not be applied retrospectively to the assessment year 2018-19. Consequently, the issue of charging interest under Sections 234B and 234C was deemed consequential and did not require further adjudication.