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

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 of employee contributions to ESIC/EPF. The Tribunal held that the contributions, though deposited late, were made before filing the return for the relevant assessment year, following precedents that allow deductions if payments are made before the return filing deadline. The Tribunal emphasized that the amendment to Section 36(1)(va) by the Finance Act, 2021, is prospective and does not apply retrospectively.

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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.

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