2022 (4) TMI 285 - AT - Income Tax

Tribunal allows appeal, overturns disallowance of EPF & ESI contributions. Finance Act, 2021 amendments apply prospectively.

The appeal was allowed by the Tribunal, with the delay in filing condoned due to technical issues. The disallowance of employee contributions to EPF and ... Allowability of employee's contribution to PF and ESI under section 36(1)(va) - interaction of section 43B with deductions under section 36(1)(va) - prospective operation of the Finance Act, 2021 amendment to section 36(1)(va) and section 43B - condonation of delay and sufficient cause under section 5 of the Limitation ActCondonation of delay and sufficient cause under section 5 of the Limitation Act - Application for condonation of two days' delay in filing the appeal - HELD THAT: - The Tribunal found that the assessee attempted to file the appeal on 29-12-2021 but was prevented by a technical fault on the ITAT e-filing portal, filed online successfully on 30-12-2021 and submitted hard copy on 31-12-2021. There was no mala fide or deliberate delay. Applying the principle of 'sufficient cause' and the liberality endorsed by the Hon'ble Supreme Court in Collector, Land Acquisition v. Mst. Katiji, the Tribunal held that the delay was occasioned by reasons beyond the assessee's control and merited condonation to secure substantial justice. [Paras 4]Application for condonation of delay allowed and appeal admitted despite two days' delay.Allowability of employee's contribution to PF and ESI under section 36(1)(va) - interaction of section 43B with deductions under section 36(1)(va) - prospective operation of the Finance Act, 2021 amendment to section 36(1)(va) and section 43B - Whether employees' contributions to PF and ESI deposited after statutory due date but before filing return under section 139(1) are allowable for AY 2019-20 - HELD THAT: - The Tribunal recorded that it is undisputed the assessee deposited employees' contributions to PF and ESI before the due date for filing the return under section 139(1) for AY 2019-20. Prior to the Finance Act, 2021 amendment, binding decisions of the Rajasthan High Court and several Co-ordinate Benches of the Tribunal held such deposits made before filing the return are allowable and not disallowable under section 43B read with section 36(1)(va). The Tribunal examined the explanatory memorandum to the Finance Act, 2021 which expressly states the amendments take effect from 1 April 2021 and apply to AY 2021-22 onwards. In view of the prospective operation of the amendment and binding precedent of the jurisdictional High Court and Coordinate Benches, the Tribunal held the amended provisions are not applicable to AY 2019-20 and directed deletion of the disallowance made by CPC/Assessing Officer. [Paras 5, 6, 7]Addition disallowing employees' contribution to PF and ESI (deposited before filing return) deleted; appeal allowed on this ground.Final Conclusion: The Tribunal allowed the assessee's application for condonation of delay and, on the merits, set aside the disallowance of employees' PF and ESI contributions deposited before filing the return for AY 2019-20, holding the Finance Act, 2021 amendment operates prospectively from AY 2021-22 and is not applicable to the assessment year under consideration. Issues Involved:1. Condonation of delay in filing the appeal.2. Disallowance of employee contribution to EPF and ESI under Section 36(1)(va) of the Income Tax Act, 1961.Detailed Analysis:Condonation of Delay in Filing the Appeal:The assessee filed an application for condonation of a 2-day delay in filing the appeal, attributing the delay to technical issues with the ITAT e-filing website. The assessee attempted to file the appeal on 29-12-2021 but succeeded only on 30-12-2021, with the hard copy submitted on 31-12-2021. The Tribunal, referencing the Supreme Court judgment in Collector, Land Acquisition vs. Mst. Katiji, emphasized a liberal approach to condonation of delay, focusing on substantial justice over technicalities. The delay was deemed beyond the control of the assessee and without malafide intent, leading to the acceptance of the condonation application.Disallowance of Employee Contribution to EPF and ESI:The core issue was the disallowance of Rs. 7,89,648/- for late payment of employee contributions to EPF and ESI, despite being deposited before the due date for filing the income tax return under Section 139(1). The CIT(A) upheld the disallowance based on the Finance Act, 2021 amendments to Sections 36(1)(va) and 43B, which were argued to apply retrospectively.The Tribunal examined the facts and relevant case laws, including decisions from various High Courts and the Supreme Court, which consistently held that contributions paid before the due date of filing the return should not be disallowed. The Tribunal cited the case of M/s Kogta Financial (India) Ltd. Vs CPC, where it was held that the amendments by the Finance Act, 2021, are applicable prospectively from the assessment year 2021-22 and not retrospectively.Moreover, the Tribunal referenced decisions from the Delhi and Bangalore Benches, which supported the view that the amendments do not apply to assessment years prior to 2021-22. The Tribunal concluded that the disallowance was unjustified and directed the deletion of the addition, thus allowing the appeal in favor of the assessee.Conclusion:The appeal was allowed, with the Tribunal condoning the delay in filing and deleting the disallowance of the employee contributions to EPF and ESI, emphasizing that the amendments to the relevant sections by the Finance Act, 2021, apply prospectively and not to the assessment year in question.