Employees' EPF and ESI contribution deposited before return filing due date remained allowable for earlier assessment years

For assessment years before the Finance Act, 2021 amendment, employees' contribution to EPF and ESI deposited after the due date under the welfare laws but before the return filing due date under Section 139(1) of the Income-tax Act, 1961 was not liable to disallowance. The Tribunal applied the then-prevailing High Court view and treated the amendment inserting Explanation 2 to Section 36(1)(va) as prospective from assessment year 2021-22. The disallowance was therefore deleted in favour of the assessee.

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Issues: Whether disallowance of employees' contribution to EPF and ESI, deposited after the due date under the respective welfare laws but before the due date for filing the return, was sustainable for assessment year 2019-20.

Analysis: The amount had been deposited after the due date under the respective enactments but before the time prescribed under Section 139(1) of the Income-tax Act, 1961. The amendment inserting Explanation 2 below Section 36(1)(va) by the Finance Act, 2021 was held to operate from assessment year 2021-22 onwards, and therefore not applicable to the year under consideration. For the relevant assessment year, the position followed by the High Courts, including the view that such contribution remained allowable if deposited before the return filing due date, was applied.

Conclusion: The disallowance was not sustainable and was directed to be deleted in favour of the assessee.

Final Conclusion: The appeal succeeded and the addition made on account of employees' contribution to EPF and ESI was deleted.

Ratio Decidendi: For assessment years prior to the Finance Act, 2021 amendment, employees' contribution to EPF and ESI deposited before the due date for filing the return under Section 139(1) of the Income-tax Act, 1961 cannot be disallowed merely because it was paid after the due date under the respective welfare statutes.

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