Contributions before filing deadline allowed as deductions. Disallowance overturned per Section 139(1)

The Tribunal allowed the appeal of the assessee, holding that the contributions paid before the due date of filing the return of income under Section 139(1) were allowable as deductions. The disallowance sustained by the Ld. CIT(A) was deleted, following earlier ITAT decisions and High Court rulings.

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Issues Involved:
Adjustment to the return of income due to the failure of the assessee to deposit employees' contributions to PF/ESI by the prescribed due dates as per Section 36(1)(va) of the Income Tax Act for the assessment year 2018-19.

Issue-wise Detailed Analysis:

1. Adjustment to Return of Income:
The solitary issue in the appeal concerns the adjustment made to the return of income filed by the assessee. The adjustment involved adding a sum of Rs. 2,78,363/- due to the failure to deposit employees' contributions to PF/ESI on or before the prescribed due dates as per Section 36(1)(va) of the Act. The assessee had paid the contributions before the due date of filing the return of income under Section 139(1) of the Act but after the due dates prescribed under the respective Acts.

2. Interpretation of Section 36(1)(va) and Section 43B:
The Revenue Authorities based their adjustment on the amendment to Section 36(1)(va) and Section 43B of the Act, introduced by the Finance Act 2021. This amendment clarified that the due date for payment of employers' contributions prescribed under Section 43B would not apply to the allowability of employees' contributions under Section 36(1)(va). The authorities argued that this amendment was clarificatory and retrospective in operation. However, the assessment year in question (2018-19) predates the amendment.

3. Assessee's Appeal:
The assessee, through their counsel, argued that the issue was covered in their favor by various judgments of the ITAT, Chandigarh Bench. They requested that the disallowance be deleted based on these precedents.

4. Revenue's Argument:
The Revenue, represented by the Ld. DR, supported the orders of the authorities below, reiterating the observations made by the Ld. NFAC in the impugned order.

5. Tribunal's Analysis:
The Tribunal considered the submissions from both parties and reviewed the material on record. It noted that an identical issue had been adjudicated by the ITAT, Chandigarh Bench, in the case of Raja Ram Vs. ITO, Yamunanagar. The Tribunal also referred to similar cases adjudicated by various Benches of the ITAT, including the ITAT Jodhpur Bench and ITAT 'B' Bench, Kolkata, which had consistently held that employees' contributions paid before the due date of filing the return of income under Section 139(1) were allowable as deductions.

6. Jurisdictional High Court Decisions:
The Tribunal referenced decisions from various High Courts, including the Hon'ble Calcutta High Court in the case of Vijayshree Ltd., which had held that the amendment introduced by the Finance Act, 2021, was not retrospective. The Hon'ble Rajasthan High Court had also consistently held that contributions paid before the due date of filing the return of income under Section 139(1) could not be disallowed under Section 43B read with Section 36(1)(va).

7. Conclusion:
Respectfully following the earlier orders of different Benches of the ITAT and the binding decisions of various High Courts, the Tribunal concluded that the disallowances sustained by the Ld. CIT(A) were to be deleted. The Tribunal allowed the appeal of the assessee, holding that the contributions paid before the due date of filing the return of income under Section 139(1) were allowable as deductions.

Final Judgment:
The appeal of the assessee was allowed, and the disallowance sustained by the Ld. CIT(A) was deleted. The order was pronounced on 29.09.2022.

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