Tribunal allows employer contributions to PF/ESI pre-filing; retrospective amendment clarificatory

The Tribunal ruled in favor of the assessee, holding that no disallowance could be made for the payment of employees' contribution to Provident Fund and ESI if made before the due date of filing the income tax return. The retrospective nature of the amendment brought by the Finance Act, 2021, was considered clarificatory, allowing employers to make deposits with some delays subject to interest and penalties. The Tribunal relied on precedents and dismissed the Revenue's appeals, directing the deletion of the disallowance sustained by the CIT (A). The appeal filed by the assessee was allowed, with the order pronounced on April 21, 2022.

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Issues: Challenge to disallowance of payment of employees' contribution towards Provident Fund and ESI under section 36(1)(va) read with section 43B of the Income-tax Act, 1961.

Analysis:
1. The appeal was filed against the order passed by the National Faceless Appeal Centre (NFAC), Delhi for the Assessment Year 2018-19, regarding the disallowance of payment of employees' contribution towards Provident Fund and ESI under section 36(1)(va) read with section 43B of the Income-tax Act, 1961.

2. The NFAC upheld the disallowance, citing the retrospective nature of the amendment brought in by the Finance Act, 2021, which was considered clarificatory. The Tribunal referred to various judgments, including the case of Flying Fabrication vs. DCIT, to support the position that if the payment of employees' contribution to PF/ESI was made before the due date of filing the return of income, no disallowance could be made.

3. The Tribunal highlighted that the amendment brought about by the Finance Act, 2021, was retrospective in nature. It was emphasized that the employer could make the deposit with some delays, subject to interest and penalties as per the Provident Fund Act and the ESI Act. The Tribunal relied on the principle laid down by the Supreme Court in Vinay Cement to support the assessee's claim.

4. Referring to various judgments of the Hon'ble Jurisdictional High Court, the Tribunal reiterated that no disallowance could be made for the payment of employees' contribution to PF and ESI made before the due date of filing the return of income. The Tribunal dismissed the Revenue's appeals and allowed those filed by the assessees.

5. In a subsequent judgment, the Tribunal held that the amendment regarding the due date of deposit of employees' contribution to PF/ESI was prospective beyond AY 2021-22. The Tribunal emphasized that if the payment was made before the due date of filing the Income-tax return before AY 2021-22, it could not be disallowed under section 36(1)(va).

6. Consequently, the disallowance sustained by the CIT (A) was directed to be deleted, and the appeal filed by the assessee was allowed. The order was pronounced on April 21, 2022.

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