Tribunal allows appeal on late EPF/ESI deposits, citing legislative intent

The Tribunal allowed the appeal filed by the assessee, holding that the disallowance of late deposit of employees' contribution to EPF and ESI was not sustainable as the contributions were made before the due date of filing the return of income. The Tribunal emphasized that the legislative intent was to allow deductions only when payments are actually made, and clarified that the amendment with the Finance Act 2021 did not apply to the assessment year in question. The Assessing Officer was directed to delete the disallowance and the order was pronounced on 31/03/2022.

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Issues:
Confirmation of disallowance of employees' contribution to ESI and EPF.

Analysis:
The appeal was filed against the order of the Commissioner of Income Tax (Appeals) confirming the disallowance of employees' contribution to ESI and EPF for the assessment year 2017-18. The assessee contended that the contributions remitted before the due date of filing the return of income under Section 139(1) of the Income Tax Act should be allowable as a deduction. The assessee relied on various decisions, including the judgment of the Delhi High Court in the case of CIT Vs. AIMIL Ltd. The Commissioner, however, relied on the decision in the case of CIT Vs. Bharat Hotels Ltd. to sustain the disallowance made by the Centralized Processing Centre (CPC).

The Tribunal found that the issue was squarely covered by the decision of the jurisdictional High Court in the case of CIT Vs. AIMIL Ltd. The Tribunal also referred to other decisions, including Pr. CIT Vs. Pro Interactive Service (India) Pvt. Ltd., where the issue was decided in favor of the assessee. The Tribunal held that employees' contribution to EPF and ESI deposited before the due date of filing the return of income, but beyond the due date prescribed under the respective laws, is allowable as a deduction. The Tribunal emphasized that the legislative intent was to ensure that the amount paid is allowed as expenditure only when the payment is actually made.

The Tribunal dismissed the argument regarding the amendment made with the Finance Act 2021, clarifying that the amendment did not apply to the assessment year in question. Therefore, the Tribunal allowed the solitary ground of appeal raised by the assessee, holding that the disallowance made by the assessing officer of the late deposit of employees' contribution to the provident fund and ESI, as it was deposited before the due date of filing the return of income, was not sustainable in law. The Tribunal directed the Assessing Officer to delete the disallowance made to the contribution to EPF and ESI as they were remitted before the due date of filing the return of income.

In conclusion, the Tribunal allowed the appeal filed by the assessee, and the order was pronounced in the open court on 31/03/2022.

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