2022 (3) TMI 614 - AT - Income Tax

Tribunal directs deletion of disallowance under IT Act, favors appellant on Education Cess claim

JMD Consultant Versus Ward-50 (1) New Delhi

The Tribunal ruled in favor of the appellant, directing the deletion of the disallowance of delayed deposit of employees' share of ESI/PF under section ... Addition u/s 36 (a) (va) - contribution received from Employees in respect of PF & ESI which is deposited after the due date - Scope of amendment - HELD THAT:- As decided in M/S. RAMESH ELECTRIC WORKS, M/S. XO FOOTWEAR P LTD. VERSUS THE DCIT, CPC, BANGALORE [2022 (2) TMI 75 - ITAT DELHI] delayed deposits of PF & ESIC before the date of filing of return of income is an allowable expenditure and for which reliance was placed on the decision of Hon’ble Delhi High Court in the case of AIMIL Ltd [2009 (12) TMI 38 - DELHI HIGH COURT] Also amendment brought out by Finance Act 2021 is concerned, “notes on clauses” to the Finance Bill 2021 clearly states that the amendment will take effect from 1st April 2021 and will apply in relation to the assessment year 2021-22 and subsequent assessment year. In such a situation, we are of the view that since the assessment year under consideration is A.Y. 2018-19, the amendment does not apply to the assessment year under consideration - no disallowance was warranted in the present case. We, therefore direct the AO to delete the addition. Thus the assessee’s ground is allowed. Issues Involved:1. Disallowance of delayed deposit of employees' share of ESI/PF under section 36(1)(va) of the IT Act.2. Applicability of Explanation 2 inserted in section 36(1)(va) by Finance Act 2021.3. Impact of judicial decisions on the disallowance.4. Allowability of Education Cess as a deduction for computation of taxable income.Analysis:Issue 1: Disallowance of delayed deposit of employees' share of ESI/PF under section 36(1)(va) of the IT Act:The appellant contested the disallowance of Rs. 39,14,490 under section 36(1)(va) for delayed deposit of employees' share of ESI/PF. The appellant argued that the amounts were deposited before filing the income tax return, thus no disallowance was warranted. The Tribunal referenced previous decisions supporting the allowance of delayed deposits if made before the return filing date. The Tribunal held that the amendment introduced by the Finance Act 2021 did not apply to the assessment year 2018-19, and as conflicting judgments existed, the one favoring the assessee should be applied. Consequently, the Tribunal directed the AO to delete the addition, ruling in favor of the appellant.Issue 2: Applicability of Explanation 2 inserted in section 36(1)(va) by Finance Act 2021:The appellant argued against the applicability of Explanation 2 inserted in section 36(1)(va) by the Finance Act 2021 for the year under consideration. The Tribunal clarified that the amendment only applied from April 1, 2021, onwards and for subsequent assessment years, not to the assessment year 2018-19. Therefore, the Tribunal held that the Explanation was not applicable in the present case.Issue 3: Impact of judicial decisions on the disallowance:The appellant raised concerns regarding the decision of the Hon'ble jurisdictional High Court in a specific case, which was later overruled by a subsequent decision. The Tribunal emphasized that when conflicting views exist, the judgment favoring the assessee should be followed. Citing legal precedents, the Tribunal ruled in favor of the appellant, directing the deletion of the addition.Issue 4: Allowability of Education Cess as a deduction for computation of taxable income:The appellant sought the allowance of Education Cess amounting to Rs. 11,256 as a deduction for computing taxable income. The Tribunal, following its earlier order, allowed the appellant's grounds, resulting in the appeal being allowed in favor of the assessee.In conclusion, the Tribunal's detailed analysis and application of legal principles led to the allowance of the appellant's appeal, emphasizing the importance of timely deposits and the impact of relevant judicial decisions on tax assessments.