Tribunal Overturns INR 19,57,906 Disallowance; ESIC and PF Contributions Deductible if Deposited Before Tax Return Due Date.

The Tribunal allowed the appeal, ruling in favor of the Appellant by deleting the disallowance of INR 19,57,906 under Section 36(1)(va) of the Act. It concluded that the contributions to ESIC and PF, deposited before the due date of filing the tax return, should be allowed as deductions. The Tribunal disagreed with the CIT (A)'s reliance on the Finance Act, 2021 amendments, emphasizing that previous judgments supported the Appellant's position. The Tribunal determined that the adjustments did not fall under Section 143(1)(a)(iv) of the Act, thereby allowing the appeal and overturning the disallowance.

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Issues involved:
Challenge to order passed by Commissioner of Income Tax (Appeals) regarding disallowance of employees' contribution to ESIC and PF under Section 36(1)(va) of the Act.

Analysis:
1. The Appellant challenged the order of the Commissioner of Income Tax (Appeals) for the Assessment Year 2018-19, which partly allowed the appeal against the intimation/order passed by the Deputy Commissioner of Income Tax under Section 143(1) of the Act. The issue revolved around the disallowance of INR 19,57,906 under Section 36(1)(va) related to employees' contribution to ESIC and PF deposited after the due date but before the due date of filing the income tax return.

2. The Appellant contended that the contributions were allowable as deductions under Section 36(1)(va) read with Section 43B of the Act, citing judgments of the Bombay High Court and the Supreme Court. The Appellant argued that the amendments introduced by the Finance Act, 2021 were applicable for Assessment Year 2021-22, and the CIT (A) erred in confirming the disallowance. The Appellant relied on a Tribunal decision in a similar case.

3. The Departmental Representative argued that Circular 22 of 2015 clarified that employee contributions are governed by Section 36(1)(va) of the Act. The representative stated that the amendments made by the Finance Act, 2021 were curative/declaratory in nature and should be applied retrospectively. The CIT (A) supported the disallowance based on this argument.

4. The Tribunal considered the submissions and material on record. It noted that the Appellant had deposited the contributions before the due date of filing the return under Section 139(1) of the Act, even though they were deposited late. The Tribunal disagreed with the CIT (A)'s reliance on the amendments introduced by the Finance Act, 2021, stating that the issue had been decided in favor of the Appellant by previous judgments. It highlighted that the adjustments/additions did not fall under the scope of Section 143(1)(a)(iv) of the Act.

5. The Tribunal emphasized that the disclosure made by the tax auditor regarding employee contributions did not constitute a disallowance triggering Section 143(1)(a)(iv) of the Act. It referenced a previous decision by the Mumbai Bench of the Tribunal to support its conclusion. Consequently, the Tribunal allowed the appeal, deleting the addition/disallowance made under Section 36(1)(va) related to the employees' contributions to ESIC/PF.

6. In conclusion, the Tribunal allowed the appeal, ruling in favor of the Appellant and deleting the disallowance of INR 19,57,906 under Section 36(1)(va) of the Act. The judgment was pronounced on 28.07.2022.

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