2022 (5) TMI 153 - AT - Income Tax

Tribunal allows appeal on PF/ESIC contributions, citing COVID-19 delay, and deems disallowance unjustified

Taj Granites Pvt. Ltd. Versus DCIT, CPC, Bengaluru And Rajesh Motors (Auto) Private Limited Versus ITO, Ward-5 (1), Jaipur.

The tribunal allowed the appeal, condoning the delay in filing the appeal due to the COVID-19 lockdown. It held that employee contributions to PF/ESIC ... Late deposit of PF and ESI employee’s contribution - addition u/s 2(24)(x) read with Section 36(1)(va) - HELD THAT:- Admitted facts of the present case are that the payments of PF & ESI contribution relating employee’s contribution are before the due date of filing of return of income U/s 139(1) of the Act. We have noted that the issue under consideration is covered by the decision of the Coordinate Bench in case of M/s Mohanlal Khatri [2021 (11) TMI 1035 - ITAT JAIPUR]. It is clear that there are series of decisions of various Hon’ble High Courts on this issue and even Hon’ble Jurisdictional High Court in the case of M/s. Industrial Security & Intelligence India P Ltd. [2015 (7) TMI 1063 - MADRAS HIGH COURT] held that the payment of employees contribution in regard to PF & ESI if made before the due date of filing of return of income u/s.139(1) of the Act, the same is allowable as deduction as per the provisions of Section 2(24)(x) r.w.s. 36(1)(va) r.w.s. 43B. Scope of amendment - We are of the view that the amendment brought in the statue i.e., by Finance Act, 2021, the provisions of Section 36(1)(va) r.w.s. 43B of the Act amended by inserting explanation 2 is prospective and not retrospective. Hence, the amended provisions of Section 43B r.w.s. 36(1)(va) of the Act are not applicable for the assessment year under consideration i.e. 2018-19 but will apply from assessment year 2021-22 and subsequent assessment years. Hence, this issue raised in assessee’s appeal is allowed. Issues Involved:1. Condonation of delay in filing the appeal.2. Disallowance of employee’s contribution to PF/ESIC under Section 36(1)(va) read with Section 2(24)(x) of the Income Tax Act, 1961.Issue-wise Detailed Analysis:1. Condonation of Delay in Filing the Appeal:The assessee filed an appeal with a delay of 135 days, justifying the delay due to the lockdown imposed during the COVID-19 pandemic. The assessee submitted a condonation application along with a reference to the Hon’ble Supreme Court order in Misc. Application No. 665/2021 in SMW (c) No. 03/2020 dated 10.01.2022. The revenue had no objection to the condonation. The tribunal found merit in the assessee's justification and condoned the delay, allowing the appeal to proceed.2. Disallowance of Employee’s Contribution to PF/ESIC:The core issue was the disallowance of Rs. 2,45,637/- for the late deposit of employee’s contribution to PF/ESIC. The assessee argued that the contributions were paid before the due date for filing the return of income under Section 139(1) of the Income Tax Act, and thus should not be disallowed.Arguments and Precedents Cited by the Assessee:- The assessee cited several judgments from the Hon’ble Supreme Court, various High Courts, and ITAT that supported the view that contributions paid before the due date of filing the return should be allowed as deductions:- Jaipur Vidhyut Vitran Nigam Limited 265 CTR 62 (Raj.)- VIT vs. State Bank of Bikaner and Jaipur (2014) 99 DTR 131 (Raj.)- AIMIL Ltd. 321 ITR 508 (Delhi H.C.)- CIT vs. P.M. Electronics Ltd. 313 ITR 161 (Delhi (HC)- ACIT vs. Ranbaxy Laboratories Ltd. 20 taxmann.com 334- Universal Precision Screws vs. ACIT 69 taxmann.com 185- Rajasthan State Beverages Corporation Ltd. 84 taxmann.com (SC)CIT(A)'s Decision:The CIT(A) upheld the disallowance, stating that the adjustment made by the AO fell under Section 143(1)(a)(ii) of the Act, as the claim was incorrect based on the return of income (ROI) which showed the delay in payments. The CIT(A) argued that the amendment brought by the Finance Act, 2021, clarified that the provisions of Section 43B do not apply to employee contributions and should be considered prospective.Tribunal's Analysis and Decision:The tribunal considered the rival contentions and the material on record. It noted that the payments were made before the due date of filing the return under Section 139(1). The tribunal referred to several decisions, including those of the Coordinate Bench and the Hon’ble Rajasthan High Court, which consistently held that contributions paid before the due date of filing the return should not be disallowed under Section 43B read with Section 36(1)(va).Key Judgments Referenced:- The tribunal cited the case of Mohangarh Engineers and Construction Company Vs. DCIT, where it was held that contributions paid before the due date of filing the return should be allowed.- The tribunal also referenced the Hon’ble Supreme Court's decision in CIT vs. Vatika Township Pvt. Ltd., which emphasized that amendments to tax laws should be prospective unless explicitly stated otherwise.Conclusion:The tribunal concluded that the amendment by the Finance Act, 2021, to Section 36(1)(va) and Section 43B, which clarified that employee contributions should not be covered under Section 43B, is prospective and applies from the assessment year 2021-22 onwards. Therefore, for the assessment year 2018-19, the disallowance of Rs. 2,45,637/- was not justified. Consequently, the tribunal allowed the appeal and deleted the disallowance.Final Order:The appeals were allowed, and the disallowances were deleted. The order was pronounced in the open court on 25/04/2022.