Tribunal rules in favor of assessee, disallowance of PF/ESI contribution unjustified. Finance Act 2021 amendments not retrospective.

The Tribunal allowed the appeal, ruling in favor of the assessee. It held that the disallowance of the employee's contribution towards PF and ESI, amounting to Rs. 4,26,382, due to delayed payment was not justified. The Tribunal determined that the amendments introduced by the Finance Act, 2021, were not applicable retrospectively to the assessment year 2018-19. Therefore, the disallowance was deleted, and the assessee's appeal was allowed.

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Issues Involved:
1. Disallowance of employee’s contribution towards PF and ESI due to delayed payment.
2. Applicability of the amendment to Section 36(1)(va) and Section 43B by the Finance Act, 2021.

Issue-wise Detailed Analysis:

1. Disallowance of Employee’s Contribution towards PF and ESI due to Delayed Payment:

The primary issue in this appeal is the disallowance of Rs. 4,26,382/- under Section 36(1)(va) due to the delayed payment of employees' contribution towards PF and ESI. The assessee filed a return of income declaring a total income of Rs. 49,52,150/-, which was processed under Section 143(1) by CPC, Bangalore, determining total income at Rs. 53,81,470/-. The adjustment of Rs. 4,26,382/- was made due to the late deposit of employees' contributions to PF and ESI, considered deemed income under Section 36(1)(va) read with Section 2(24)(x).

The assessee contended that the contributions were deposited before the due date for filing the return of income under Section 139(1) of the Income Tax Act, 1961. The CIT(A) confirmed the addition, citing the clarificatory amendments made by the Finance Act, 2021, which were not applicable retrospectively.

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

The Tribunal considered whether the amendment brought by the Finance Act, 2021, to Section 36(1)(va) and Section 43B was applicable retrospectively. The Tribunal noted that prior to the amendment, the issue was settled in favor of the assessee by various High Courts, including the Jurisdictional High Court, which held that contributions deposited before the due date for filing the return of income under Section 139(1) were allowable.

The Tribunal referenced its earlier decision in the case of M/s Kogta Financial (India) Ltd. Vs CPC, where it was held that the amendments introduced by the Finance Act, 2021, were applicable only from A.Y. 2021-22 and subsequent years. Therefore, these amendments could not be applied retrospectively to the assessment year under consideration (A.Y. 2018-19).

The Tribunal also cited the Delhi Bench's decision in Chatru Mal Garg Vs ACIT, which held that the amendments by the Finance Act, 2021, would take effect from 1st April 2021 and apply to A.Y. 2021-22 and subsequent years. The Tribunal emphasized that the binding precedents of the Jurisdictional High Court must be followed, which were in favor of the assessee.

Conclusion:

The Tribunal concluded that the disallowance of Rs. 4,26,382/- on account of employees' contribution towards PF and ESI deposited before the due date for filing the return of income under Section 139(1) was not justified. The amendments brought by the Finance Act, 2021, were not applicable to the assessment year 2018-19. Consequently, the disallowance was deleted, and the appeal of the assessee was allowed.

Order Pronouncement:

The order was pronounced in the open court on 11/03/2022.

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