Tribunal allows appeals on PF/ESIC contributions, emphasizes actual payments, and clarifies prospective application of Finance Act.

The Tribunal allowed all appeals filed by the assessees, holding that the disallowance of employees' contribution to PF/ESIC was not justified. It emphasized that the legislative intent was to allow expenditure only when payments were actually made, and belated payments should not be treated as deemed income of the employer. The Tribunal clarified that the amendment by the Finance Act, 2021, would apply prospectively and not to the assessment year in question. The assessees were granted relief, with the option for the Revenue to seek restoration if contributions were not timely deposited.

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Issues:
1. Correctness of disallowance of employees' contribution to PF/ESIC under section 2(24)(x) r.w.s 36(1)(va).

Analysis:
The appeals were filed by the assessees challenging the orders passed by appellate authorities regarding the disallowance of employees' contribution to PF/ESIC. The main contention was that the assessees had deposited the contributions before the due date for filing the income tax return, even though there might have been a delay in adhering to the prescribed Act. The Tribunal noted that the issue had been settled in favor of the assessee by various judicial pronouncements, including a judgment by the Hon'ble Jurisdictional High Court of Delhi. The legislative intent was to allow expenditure only when the payment is actually made, and belated payment of EPF and ESI should not be treated as deemed income of the employer under section 2(23)(x) of the Act.

Regarding the amendment brought by the Finance Act, 2021, the Tribunal clarified that it would apply prospectively from 01st April 2021 and not to the assessment year under consideration. The Revenue failed to demonstrate that the previous order had been overruled by a higher judicial forum. Therefore, the AO was not justified in denying the deduction claimed by the assessee for late deposit of PF/ESI/EPF, especially when the contributions were made before filing the return of income.

In a specific case concerning Pepsoco India Holdings Private Limited, the Tribunal emphasized that the scope of prima facie disallowance under Section 143(1) was limited and adjustments towards employees' contribution to PF/ESIC resulting in disallowance were not permissible in law. The Tribunal allowed the appeals filed by the assessees, concluding that the expenses related to employee provident fund and employee state insurance scheme were allowable, provided the contributions were deposited before the due date of filing the return of income. The Revenue was given the option to seek restoration of the appeal if it was found that the contributions were not deposited on time.

In the final decision, all appeals of the assessees were allowed by the Tribunal, following the precedent set by the Hon'ble Jurisdictional High Court of Delhi and the legal principles discussed in the judgment.

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