2022 (5) TMI 1172 - AT - Income Tax

Tribunal allows deduction for late ESIC/EPF payments, citing timely return filing

Muhammed Aftab Alam Versus DCIT-6, Lucknow

The Tribunal ruled in favor of the assessee, allowing the appeal and deleting the disallowance of Rs. 15,58,782 under Section 36(1)(va) for late payment ... Delayed employees’ contribution of EPF & ESI - scope of amendment - HELD THAT:- There is no dispute between the parties regarding the date of deposit of PF & ESI, which clearly is beyond the prescribed date of deposit as applicable under the relevant section of the I.T. Act. Further, there is no dispute between the parties that the deposits were made before the filing of return of income for the relevant assessment year. As Relying on SAGUN FOUNDRY PRIVATE LIMITED VERSUS COMMISSIONER OF INCOME TAX, KANPUR [2016 (12) TMI 1479 - ALLAHABAD HIGH COURT] there has been amendment in section 36(1)(va) of the Act, and find that the said amendment is applicable w.e.f. 1.4.2021 and is prospective in nature and not retrospective. Allowed deduction towards employee contribution received by employer which was deposited late by employer beyond the time stipulated u/s 36(1)(va) , but before the due date as prescribed for filing of return of income u/s 139(1) of the 1961 Act, and there cannot be a class different now at this stage where the deduction is to be denied on the ground of strict interpretation of the provisions of Section 36(1)(va) , unless the amendment made by Finance Act, 2021 is made specifically applicable retrospectively from the date of insertion of the provision or any other specified earlier date in the Finance Act, rather on the other hand , the Memorandum to Finance Bill, 2021 has specifically made this amendment applicable from 01.04.2021 and specified that the same shall be made applicable from assessment year 2021-22 and subsequent assessment years. We are presently concerned with ay: 2005-06. - Decided in favour of assessee. Issues Involved:1. Confirmation of intimation under Section 154 by CPC.2. Disallowance of Rs. 15,58,782/- under Section 36(1)(va) due to late payment of employee contributions to ESIC/EPF.Issue-wise Detailed Analysis:1. Confirmation of Intimation under Section 154 by CPC:The appellant contested the confirmation of the intimation under Section 154 by the Centralized Processing Center (CPC), which processed the return of income for AY 2019-20 at Rs. 36,47,045/-. The rectification application filed by the assessee under Section 154 was also rejected by the Assessing Officer. The appeal before the CIT(A) was dismissed, leading to the current appeal before the Tribunal.2. Disallowance under Section 36(1)(va) for Late Payment of Employee Contributions:The core issue revolves around the disallowance of Rs. 15,58,782/- under Section 36(1)(va) of the Income Tax Act, concerning late payments of employee contributions to ESIC/EPF. The appellant argued that although the contributions were deposited beyond the due dates stipulated in the respective Acts, they were made before filing the return of income for the relevant assessment year. The appellant cited the judgment of the Hon'ble Allahabad High Court in 'Sagun Foundry (P.) Ltd. vs. CIT', which relied on the Supreme Court's decision in 'CIT vs. Alom Extrusions Ltd.', asserting that such contributions should be allowed as deductions if deposited before the filing of the return.The respondent, represented by the Departmental Representative (D.R.), argued that the CIT(A) correctly upheld the disallowance, relying on several case laws. The D.R. also mentioned an amendment introduced by the Finance Act, 2021, which clarified that the provisions of Section 43B would not apply retrospectively to employee contributions under Section 36(1)(va).Tribunal's Findings:The Tribunal reviewed the rival submissions and the material on record. It acknowledged that there was no dispute about the late deposit of PF & ESI contributions. However, the Tribunal noted that the contributions were made before the filing of the return for the relevant assessment year.The Tribunal referred to the Allahabad High Court's decision in 'Sagun Foundry (P.) Ltd. vs. CIT', which had dealt with a similar issue and decided in favor of the assessee. The High Court had examined various judgments and concluded that Section 43B, which allows deductions on actual payment, applies to both employer and employee contributions if paid before the due date for filing the return under Section 139(1).The Tribunal also cited its own decisions in similar cases, such as 'Tirubala International Pvt. Ltd. vs. DCIT' and 'Axis Motors Pvt. Ltd. vs. DCIT', where it had followed the judgment in 'Sagun Foundry' and ruled in favor of the assessee.Regarding the amendment to Section 36(1)(va) by the Finance Act, 2021, the Tribunal noted that it is prospective, effective from April 1, 2021, and does not apply retrospectively. The Tribunal referred to the Allahabad Bench's decision in 'JCIT, Circle-2, Allahabad vs. Bharat Pumps and Compressors Ltd.', which held that the amendment applies from AY 2021-22 onwards.Conclusion:The Tribunal decided the issue in favor of the assessee, allowing the appeal. The disallowance of Rs. 15,58,782/- under Section 36(1)(va) was deleted, and the other grounds raised by the assessee were not required to be adjudicated. The appeal of the assessee was allowed, and the order was pronounced in the open Court on May 17, 2022.