2022 (10) TMI 760 - AT - Income Tax

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 ... Disallowance of ESI/PF - Addition invoking sec. 36(1)(va) - assessee failed to deposit the same before the due date prescribed under the corresponding statute(s) - HELD THAT:- The relevant observations we need to mention at this juncture that the Finance Act, 2021 has inserted Explanation 2 below section 36(1)(va) providing that the provisions of section 43B shall not apply for the purpose of determining the due date under this clause w.e.f. 01-04-2021. The effect of this amendment is that if the amount of employees’ contribution towards EPF, ESI, etc. is delayed by an employer beyond the due date under the respective Acts, the disallowance will be called for notwithstanding the fact that it was deposited before the due date u/s 139(1) of the Act. Memorandum explaining the provisions of the Finance Bill 2021, provides that this amendment will take effect from 1st April 2021 and will accordingly apply in relation to assessment year 2021-22 and subsequent assessment years. Before us, the assessment year is 2019-20. Since the assessment year under consideration is earlier to the amendment carried out with effect from A.Y. 2021-22, we hold that the position of law as set out by various Hon'ble High Courts’ decisions including Ghatge Patil Transports Ltd. [2014 (10) TMI 402 - BOMBAY HIGH COURT] and Nipso Polyfabrics Ltd [2012 (11) TMI 592 - HIMACHAL PRADESH HIGH COURT] squarely applies to the facts and circumstances of the instant case thereby not warranting any disallowance since the amount in question was admittedly deposited before the due date u/s 139(1) of the Act and also pertains to assessment year prior to A.Y. 2021-22. We adopt the foregoing detailed reasoning and direct the Assessing Officer herein to delete the impugned 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) - Appeal is allowed for statistical purposes. 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.