2022 (2) TMI 1477 - AT - Income Tax

Tribunal Rules Timely Remittance of Employee PF & ESI Contributions Valid for AY 2019-20 Despite 2021 Amendment.

M/s. Purple Talk India Private Limited Versus DCIT, Circle-16 (2), Hyderabad

The Tribunal allowed the assessee's appeal, directing the AO to delete the disallowance of the employees' contribution to PF and ESI funds. The Tribunal ... Disallowance of expenditure incurred towards payment made for employees’ contribution to PF & ESI - though they were remitted in the Government Treasury within the due date of filing the income tax return - HELD THAT:- In the case of the assessee it is not disputed that the employee’s contribution was deducted by the assessee and remitted in the Government Treasury within the due date of filing the return of income under the Income Tax Act, 1961. Since the case of the assessee relates to assessment year 2019-20 and the amendment though clarificatory in nature has come into effect from 1/4/2021, for the relevant year under consideration it would suffice that the employee’s contribution deducted by the assessee is remitted in the Government Treasury within the due date of filing of the return of income as prescribed under the Act. Therefore, the disallowance made by the Ld. Revenue Authorities is deserved to be deleted. Similar view was expressed in the case Salzgitter Hydraulics (P.) Ltd [2021 (6) TMI 1059 - ITAT HYDERABAD] - Hence, we hereby direct the Ld. AO to delete the addition made in the hands of the assessee towards disallowance of payment made in regard to the employee’s contribution to PF & ESI fund. Appeal of the assessee is allowed. Issues:Disallowance of expenditure incurred towards payment made for employees' contribution to PF & ESI fund.Analysis:The appeal was filed against the order of the Ld. CIT(A), NFAC, Delhi regarding the disallowance of expenditure incurred for employees' contribution to PF & ESI fund, despite being remitted within the due date of filing the income tax return for AY 2019-20. The Memorandum Explaining the Provisions in Finance Bill, 2021 clarified the issue. It highlighted the distinction between employer and employee contributions to welfare funds, emphasizing that employee contributions are the employees' own money deposited by the employer. The memorandum proposed amendments to sections 36(1)(va) and 43B of the Income Tax Act, stating they would take effect from 1st April 2021.The Tribunal noted that the employee's contribution was deducted by the assessee and remitted to the Government Treasury within the due date for filing the income tax return under the Act. Even though the amendment was clarificatory and applicable from 1st April 2021, the Tribunal ruled that for the relevant assessment year (2019-20), it was sufficient that the employee's contribution was remitted within the due date. Citing a similar decision by the Hyderabad SMC Bench in a previous case, the Tribunal directed the Ld. AO to delete the disallowance of the payment made for employees' contribution to PF & ESI fund. As a result, the appeal of the assessee was allowed.In conclusion, the Tribunal's decision was based on the clarification provided in the Finance Bill, emphasizing the importance of timely remittance of employee contributions to welfare funds. The ruling highlighted the distinction between employer and employee contributions and upheld that the disallowance made by the Revenue Authorities was unwarranted in this case, leading to the deletion of the addition in the hands of the assessee.