ITAT Delhi allows deductions for belated PF/ESIC payments, rejects retrospective amendment.

The ITAT Delhi ruled in favor of the assessee, deleting the disallowances of employees' PF and ESIC contributions deposited after the due date but before the due date for filing the Income Tax Return. The ITAT held that the legislative intent was to allow deductions when payments were actually made, not to treat belated payments as deemed income of the employer. Additionally, the ITAT determined that the amendment in section 36(1)(va) of the Income Tax Act by the Finance Act, 2021 was prospective and could not be applied retrospectively, leading to the deletion of the disallowed contributions.

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Issues:
1. Disallowance of employees' PF and ESIC contributions deposited after the due date but before the due date for filing the Income Tax Return.
2. Applicability of the amendment and explanation in section 36(1)(va) of the Income Tax Act by the Finance Act, 2021.

Issue 1: Disallowance of employees' PF and ESIC contributions:
The appeals concern disallowances made by the CPC in the returned income under section 143(1) of the IT Act for the assessment years 2018-19 and 2019-20. The assessee challenged the disallowances before the CIT(A), arguing that the disallowed amounts were deposited after the due date specified in the PF and ESIC Acts but before the due date for filing the Income Tax Return. The CIT(A) upheld the disallowances, citing the clarificatory amendment by the Finance Act, 2021 to Section 36(1)(va) of the Act. However, the assessee contended that various judgments of the High Court favored taxpayers in such cases. The ITAT Delhi, following the precedent set by the High Court judgments in CIT Vs. AIMIL Ltd. and M/s Pro Interactive Services (India) Pvt. Ltd., held in favor of the assessee, stating that the legislative intent was to allow deductions when payments were actually made, and not to treat belated payments as deemed income of the employer under section 2(24)(x) of the Act. Consequently, the disallowances were deleted, and the appeals were allowed.

Issue 2: Applicability of the amendment in section 36(1)(va) of the Income Tax Act:
The second issue revolved around whether the amendment and explanation in section 36(1)(va) of the Income Tax Act by the Finance Act, 2021 was clarificatory or retrospective in nature. The ITAT Delhi referred to various judgments, including those of Indian Geotechnical Services Vs. ACIT and Adyar Ananda Bhavan Sweets India Pvt. Ltd. Vs. ACIT, which held that the explanation inserted by the Finance Act, 2021 was prospective and could not be applied retrospectively. Based on these precedents, the ITAT Delhi concluded that the disallowed contributions of employees deposited after the due date specified in the PF/ESIC Acts but before the due date for filing the Return of Income should be deleted. The ITAT allowed the appeals, following the consistent view taken in similar cases.

In conclusion, the ITAT Delhi ruled in favor of the assessee on both issues, deleting the disallowances of employees' PF and ESIC contributions and holding that the amendment in section 36(1)(va) of the Income Tax Act by the Finance Act, 2021 was prospective in nature.

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