Tribunal grants appeal, allows deduction for employees' contributions to provident fund and ESI

The Tribunal allowed the appeal, condoning the delay and ruling in favor of the assessee. The Tribunal directed the AO to grant the deduction for the employees' contributions to provident fund and ESI, as the payments were made before the due date for filing the return of income under section 139(1).

---

---

Issues Involved:
1. Opportunity of hearing by CIT(A).
2. Delay in filing the appeal and condonation.
3. Treatment of employee’s contribution to provident fund and ESI as income.
4. Allowability of deduction for employee’s contribution to provident fund and ESI under section 43B of the Act.

Detailed Analysis:

1. Opportunity of Hearing by CIT(A):
The appellant contended that the CIT(A) erred in passing the order without giving an opportunity of hearing, making the order bad in law. The Tribunal did not specifically address this issue separately but focused on the broader issue of delay and its condonation, which inherently covers the aspect of the opportunity to be heard.

2. Delay in Filing the Appeal and Condonation:
The appeal to CIT(A) was delayed by 242 days. The appellant argued that the delay was due to a bona fide belief that the issue could be resolved through a petition under section 154, influenced by advice from the finance team and tax consultants, and compounded by the Covid-19 situation. The CIT(A) rejected the delay condonation petition, citing insufficient cause.

The Tribunal, however, analyzed the delay considering the provisions of the Taxation and Other Laws (Relaxation and Amendments of Certain Provisions) Act 2020, which effectively reduced the delay to 92 days. Drawing from the principles laid down by the Supreme Court in Collector, Land Acquisition v. Mst. Katiji and Ors., the Tribunal emphasized that substantial justice should prevail over technical considerations. The Tribunal noted that the bona fide belief of the assessee regarding the acceptance of the refund claim constituted sufficient cause for the delay. Consequently, the Tribunal condoned the delay and admitted the appeal for adjudication on merits.

3. Treatment of Employee’s Contribution to Provident Fund and ESI as Income:
The Assessing Officer (AO) treated the late remittance of employee’s contribution to provident fund and ESI, amounting to Rs. 13,93,789, as income under section 2(24)(x) read with section 36(1) of the Act. The CIT(A) upheld this treatment without delving into the merits due to the delay in filing the appeal.

4. Allowability of Deduction for Employee’s Contribution to Provident Fund and ESI under Section 43B:
On merits, the appellant argued that the contributions were remitted before the due date for filing the return of income under section 139(1) and should be allowable under section 43B, supported by judicial decisions. The Tribunal referred to the jurisdictional High Court's decision in Essae Teraoka Pvt. Ltd Vs. DCIT, which held that contributions paid before the due date for filing the return are deductible.

The Tribunal reiterated that the amendment by the Finance Act, 2021 to sections 36(1)(va) and 43B, which was not clarificatory but prospective, did not apply to the relevant assessment year. Thus, following the binding decision of the jurisdictional High Court, the Tribunal concluded that the employees’ contributions paid before the due date of filing the return are allowable deductions. The disallowance made by the AO was deleted.

Conclusion:
The Tribunal allowed the appeal, condoning the delay and ruling in favor of the assessee on the merits, directing the AO to grant the deduction for the employees’ contributions to provident fund and ESI, as the payments were made before the due date for filing the return of income under section 139(1).

---