Tribunal allows appeal on ESI/PF contributions disallowance under sec. 36(1)(va) for A.Y. 2019-20

The Tribunal allowed the assessee's appeal challenging the disallowance of ESI/PF contributions under sec. 36(1)(va) for A.Y. 2019-20. Relying on precedent, the Tribunal held that if the employees' contributions were paid before the due date of filing the return, no disallowance was warranted. The Tribunal directed the Assessing Officer to delete the disallowance after verifying that the payments were made before the due date. The appeal was allowed in favor of the assessee for statistical purposes.

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Issues Involved:
1. Challenge of correctness of lower authorities' action invoking sec. 36(1)(va) disallowance of ESI/PF.

Analysis:
1. The assessee's appeal for A.Y. 2019-20 challenges the correctness of the lower authorities' action invoking sec. 36(1)(va) disallowance of ESI/PF amounting to Rs. 6,23,066/- for failing to deposit it before the due date prescribed under the corresponding statute(s).

2. The assessee argued that as per various decisions of Pune Tribunal, if the employees' contribution to provident fund is paid before the due date of filing the return of income, it is deductible under section 43B of the Income-tax Act, 1961. The amendment made by the Finance Act, 2021 inserting Explanation 2 to section 43B is applicable prospectively from A.Y. 2021-22. In this case, the payment of the employee's contribution to provident fund was made before the due date of filing the return of income u/s 139(1) of the Act.

3. The issue was found to be covered by the decision of Pune Tribunal in several cases where the Tribunal held that if the amount of employees' contribution towards EPF, ESI, etc. is delayed by an employer beyond the due date under the respective Acts but paid before the due date u/s 139(1) of the Act, no disallowance is warranted. The Tribunal relied on various High Court decisions, including the Hon'ble Himachal Pradesh High Court and Hon'ble Jurisdictional High Court, to support the allowance of deduction u/s 36(1)(va) for such contributions.

4. The Tribunal directed the Assessing Officer to delete the disallowance after factual verification that the assessee had credited/paid the ESI/EPF before the due date of filing the return u/s 139(1) of the Act. The appeal was allowed for statistical purposes in favor of the assessee.

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