2022 (8) TMI 384 - AT - Income Tax

ITAT overturns CIT(A) decision, directs AO to cancel disallowance under Income Tax Act

The ITAT allowed the appeal, overturning the CIT(A)'s decision and directing the AO to cancel the disallowance of Rs.1,91,013 under section 36(1)(va) of ... Delayed employees contribution towards EPF/ESIC - contribution made beyond the stipulated time period contemplated under the respective Employees Welfare Acts, but had deposited the same prior to the “due date” of filing of its return of income for the year under consideration - Scope of amendment - HELD THAT:- We find that the issue herein involved is squarely covered by the order passed by the Tribunal in the case of M/s Ind Synergy Limited [2022 (4) TMI 36 - ITAT RAIPUR] wherein held as the amendments made available on the statue vide the Finance Act, 2021 i.e “Explanation 5” to Section 43B and “Explanation 2” to Section 36(1)(va) are applicable w.e.f 01.04.2021, i.e, from A.Y 2021-22 onwards, therefore, the same would not have any bearing on the case of the assessee before us, i.e, for A.Y 2011-12. Accordingly, drawing support from the aforementioned judicial pronouncements, we, herein conclude, that as the employees contributions to PF and ESI was deposited by the assessee before the “due date” of filing of its return of income for the year under consideration, therefore, the same being saved by the provisions of Sec. 43B of the Act could not have been disallowed by the A.O. - Decided in favour of assessee. Issues Involved:Appeal against order disallowing contribution towards EPF/ESIC under Sec 143(3) of the Income Tax Act, 1961 for assessment year 2015-16.Detailed Analysis:Issue 1: Disallowance of Employees' Contribution towards EPF/ESICThe appeal challenges the disallowance of Rs.1,91,013 for delayed deposit of employees' share of contributions towards Provident Fund (PF) and Employees State Insurance (ESI) by the assessee. The AO disallowed the amount under section 36(1)(va) of the Act. The CIT(A) upheld the disallowance, leading to the appeal before the ITAT. The assessee argued that as the amount was deposited before the due date of filing the return of income, no disallowance was warranted under section 43B of the Act. The AR cited judicial pronouncements to support this contention. The DR, however, relied on legislative amendments to assert that the delayed deposit would not be saved by the extended time period under section 43B(b) of the Act.Issue 2: Applicability of Section 43B to Employees' ContributionThe ITAT referred to a previous order in the case of M/s Ind Synergy Limited where a similar disallowance was addressed. The Tribunal held that no distinction should be made between employers' and employees' contributions to PF and ESI, as both are covered under section 43B of the Act. The ITAT also discussed the applicability of recent amendments introduced by the Finance Act, 2021, specifically 'Explanation 5' to Section 43B and 'Explanation 2' to Section 36(1)(va). Citing the decision in Vinko Auto Industries Ltd. Vs. DCIT, the ITAT determined that these amendments are applicable prospectively from Assessment Year 2021-22 onwards.Conclusion:The ITAT allowed the appeal, setting aside the order of the CIT(A) and directing the AO to vacate the disallowance of Rs.1,91,013 made under section 36(1)(va) of the Act for delayed deposit of employees' contribution towards EPF/ESIC. The ITAT followed the precedent set in the case of Ind Synergy Limited. The general ground of appeal was dismissed as not pressed. The decision was pronounced on August 5, 2022.