2022 (3) TMI 173 - AT - Income Tax

Tribunal clarifies timing for ESI contribution deduction, considers Finance Act amendments

Euro Hardware World Versus The Deputy Commissioner of Income Tax, CPC, Bangalore

The Tribunal allowed the appeal, directing the deduction of employees' contribution to ESI before the due date of filing the return. The judgment ... Disallowing employees' contribution to PF & ESI as paid before the due date of filing of the return of income u/s. 139(1) - Scope of amendment by Finance Act, 2021, to section 36[1][va] and 43B - HELD THAT:- As in Bangalore Bench of the Tribunal in the case of M/s. Shakuntala Agarbathi Company [2021 (10) TMI 1196 - ITAT BANGALORE] by following the dictum laid down in the case of Essae Teraoka Pvt. Ltd Vs. DCIT [2014 (3) TMI 386 - KARNATAKA HIGH COURT] held that the assessee would be entitled to deduction of employees’ contribution to PF and ESI provided that the payments were made prior to the due date of filing of the return of income u/s 139(1) - Also further held by the ITAT that amendment by Finance Act, 2021, to section 36[1][va] and 43B of the Act is not clarificatory. Therefore, the amended provisions of section 43B as well as 36(1)(va) of the I.T.Act are not applicable for the assessment years under consideration. By following the binding decision of the Hon’ble jurisdictional High Court in the case of Essae Teraoka Pvt. Ltd Vs. DCIT (supra), the employees’ contribution paid by the assessee before the due date of filing of return of income u/s 139(1) of the I.T.Act is an allowable deduction - Decided in favour of assessee. Issues:- Disallowance of late payment of PF/ESI- Interpretation of section 43B of the Income Tax Act- Applicability of Finance Act, 2021 amendments- Allowability of employees' contribution to PF and ESIAnalysis:1. Disallowance of late payment of PF/ESI:- The appeal was against the CIT(A)'s order disallowing the late payment of PF/ESI by the assessee. The dispute arose from the difference between the returned income and the assessed income under section 143(1) of the Income Tax Act due to late remittance of employees' contribution to PF and ESI.2. Interpretation of section 43B of the Income Tax Act:- The assessee contended that the employees' contribution to PF and ESI should be deductible under section 43B if paid before the due date of filing the return under section 139(1) of the Act. The CIT(A) rejected this argument, stating that only employer contributions were eligible for deduction.3. Applicability of Finance Act, 2021 amendments:- The Finance Act, 2021 amendments to section 36(1)(va) and 43B were considered clarificatory and retrospective by the CIT(A). However, the Tribunal disagreed, citing the judgment in Essae Teraoka Pvt. Ltd. vs. DCIT, and held that the amendments were not clarificatory and had a prospective effect from 01.04.2021 onwards.4. Allowability of employees' contribution to PF and ESI:- The Tribunal, following the decision in M/s. Shakuntala Agarbathi Company vs. DCIT, allowed the deduction of employees' contribution to PF and ESI if paid before the due date of filing the return. The Tribunal found that the Finance Act, 2021 amendments did not apply to the relevant assessment year (2019-2020) and directed the AO to grant the deduction for employees' contribution to ESI.In conclusion, the Tribunal allowed the appeal filed by the assessee, directing the deduction of employees' contribution to ESI before the due date of filing the return. The judgment emphasized the interpretation of section 43B, the impact of Finance Act, 2021 amendments, and the applicability of relevant case law in determining the allowability of deductions for PF and ESI contributions.