ITAT rules in favor of assessee, allowing ESI/PF contributions if paid before return filing.

The ITAT ruled in favor of the assessee, deleting the disallowances made under section 43(1) and confirming that employees' contributions of ESI/PF should not be disallowed for late payment if deposited before the due date of filing returns.

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Issues:
1. Addition of Rs. 2112070 under section 43(1) of the Income Tax Act for late deposit of PF/ESI.
2. Disallowance of payment of Employees' contribution of ESI/PF by CPC for late payment.

Analysis:

Issue 1: Addition under section 43(1) for late deposit of PF/ESI
The appeal challenged the addition of Rs. 2112070 made by the CPC under section 43(1) of the Income Tax Act for late deposit of PF/ESI following the amendment in 43B. The appellant argued that the amendment was not retrospective and thus the addition was void ab initio. The Commissioner of Income Tax (Appeals) upheld the addition, leading to the appeal before the ITAT. The ITAT noted the controversy regarding the applicability of section 43B to employees' contributions towards PF & ESI. Citing various judgments, including the case of CIT Vs. M/s. Vegetables Products Ltd., the ITAT emphasized adopting a construction favoring the assessee in taxing provisions. The ITAT referred to judgments like Rajasthan State Beverages Ltd and CIT Vs. Alom Extrusion Ltd, where the Supreme Court held that if the PF and ESI contributions were deposited before the due date of filing returns, they cannot be disallowed under section 43B or 36(1)(va) of the Act. The ITAT also highlighted the Delhi High Court's rulings in cases like CIT vs. AIMIL Ltd. and Pr.CIT Vs. M/s Pro Interactive Services (India) Pvt. Ltd., which supported the assessee's position.

Issue 2: Disallowance of Employees' contribution of ESI/PF for late payment
The second issue revolved around the disallowance of employees' contribution of ESI/PF by CPC due to late payment by the assessee. The ITAT noted that the CIT(A) upheld the disallowance based on the non-applicability of section 43B to employees' share and the amended provisions of Sections 36(1)(va) and 43B introduced by the Finance Act 2021. The ITAT referred to the amendments brought in by the Finance Act 2021, inserting Explanation 2 in Section 36(1)(va) and Explanation 5 in section 43B, clarifying that these provisions shall not apply for determining the "due date." The ITAT highlighted that various ITAT benches, including the Hyderabad Bench, had ruled on the applicability of these amendments, stating they would be effective from April 1, 2021, onwards. Considering this, the ITAT found the disallowances made by the Assessing Officer and confirmed by the CIT(A) were unsustainable and hence deleted the same, allowing the appeal of the assessee.

In conclusion, the ITAT ruled in favor of the assessee, deleting the disallowances made under section 43(1) and confirming that the employees' contributions of ESI/PF should not be disallowed for late payment if deposited before the due date of filing returns.

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