Tribunal grants deduction for PF/ESI contributions verified before income tax return due date

The Tribunal allowed the appeal filed by the assessee, directing the Assessing Officer to verify the challans evidencing the deposit of employee contributions to PF/ESI before the due date for filing the return of income under Section 139(1). If verified, the assessee shall be entitled to the deduction under Section 36(1)(va) of the Act. The decision was based on the consistent judicial interpretation that the amendments by the Finance Act, 2021, are prospective and the principles laid down by the Allahabad High Court in a relevant case.

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Issues Involved:
1. Disallowance of Late Payment of Employee Contributions to PF/ESI
2. Applicability of Amendments by Finance Act, 2021

Detailed Analysis:

Disallowance of Late Payment of Employee Contributions to PF/ESI:
The primary issue in this appeal was the disallowance of Rs. 31,46,748/- added to the income of the assessee due to the late payment of employee contributions to PF/ESI. The assessee argued that the contributions, although deposited late, were made before the due date for filing the return of income under Section 139(1) of the Income-tax Act, 1961. The Revenue contended that such late payments should be disallowed under Section 36(1)(va) read with Section 2(24)(x) of the Act, which mandates that employee contributions must be deposited within the time prescribed under the relevant statute governing PF/ESI.

The Tribunal noted that various High Courts, including the Allahabad High Court, have held that if employee contributions to PF/ESI are deposited before the due date for filing the return of income under Section 139(1), the deduction should be allowed. The Tribunal cited the Allahabad High Court decision in the case of Sagun Foundry Private Limited, which held that Section 43B applies to both employer and employee contributions, allowing deductions if payments are made before the due date for filing the return of income.

Applicability of Amendments by Finance Act, 2021:
The Tribunal also addressed the amendments made by the Finance Act, 2021, which inserted Explanation 2 to Section 36(1)(va) and Explanation 5 to Section 43B, clarifying that the provisions of Section 43B shall not apply to employee contributions to PF/ESI. The amendments were intended to provide certainty and were explicitly made applicable from the assessment year 2021-22 onwards.

The Tribunal observed that the amendments by the Finance Act, 2021, are prospective and do not apply to earlier assessment years. This interpretation aligns with the legislative intent to resolve disputes and reduce litigation for periods before the assessment year 2021-22. The Tribunal noted that several other benches of the ITAT have consistently held that the amendments are prospective and do not have retrospective effect.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, directing the Assessing Officer to verify the challans evidencing the deposit of employee contributions to PF/ESI before the due date for filing the return of income under Section 139(1). If verified, the assessee shall be entitled to the deduction under Section 36(1)(va) of the Act. The decision was based on the consistent judicial interpretation that the amendments by the Finance Act, 2021, are prospective and the principles laid down by the Allahabad High Court in the case of Sagun Foundry Private Limited.

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