2022 (8) TMI 1601 - AT - Income Tax

Late-paid employee PF/ESIC contributions paid before return-filing due date: deductible u/s36(1)(va)/s.43B, disallowance deleted.

The dominant issue was whether employees' contributions to PF/ESIC paid after the statutory due dates under the respective welfare laws but before the due ... Delayed employees contribution to Provident Fund (PF) and Employees’ State Insurance Corporation (ESIC) - payment by the assessee during the year under consideration after the due date prescribed under PF/ESIC Act - addition u/s 36(2)(va) - scope of amendments introduced by the Finance Act, 2021 to section 36(1)(va) read with section 43B. HELD THAT:- As decided in Ghatge Patil Transporters Ltd. [2014 (10) TMI 402 - BOMBAY HIGH COURT] deduction claimed by the assessee on account of employees contribution to PF & ESIC well before the due date of filing return of income is allowable deduction as the amended provisions brought out in the statute are applicable from AY 2021-22 only, meaning thereby section 36(1)(va) of the Act is to be construed only as prospective in operation, hence not applicable to the year under consideration. Further held that both employees’ and employer’s contribution are covered under amendment to section 43B and covered under judgment of Alom Extrusions Ltd. [2009 (11) TMI 27 - SUPREME COURT] and such deduction claimed by the assessee is allowable. As in case of M/s. Adyar Ananda Bhavan Sweets India P. Ltd. [2021 (12) TMI 558 - ITAT CHENNAI] also decided the identical issue in favour of the assessee by holding that the payment of employees contribution qua PF & ESIC if made before the due date of filing of return of income, the same is allowable deduction as per provisions of Section 2(24)(x) r.w.s. 36(1)(va) r.w.s. 43B of the Act. Since the amended provisions contained under section 43B read with section 36(1)(va) of the Act are not applicable for the year under consideration i.e. A.Y. 2018-19 as the amendment will be effective from A.Y. 2021-22 and the AO/ Ld. CIT(A) have erred in disallowing the same. Assessee appeal allowed. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether employees' contribution to PF and ESIC, deposited after the due dates prescribed under the respective Acts but before the due date for filing the return of income under the Act for A.Y. 2018-19, is allowable as a deduction. 1.2 Whether the amendments introduced by the Finance Act, 2021 to section 36(1)(va) read with section 43B, governing allowability of employees' contribution to PF/ESIC, operate prospectively from A.Y. 2021-22 and are inapplicable to A.Y. 2018-19. --- 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 & 2: Allowability of employees' contribution to PF/ESIC deposited after statutory due date but before due date of return; nature and temporal operation of the Finance Act, 2021 amendments to sections 36(1)(va) and 43B (a) Legal framework (as discussed in the judgment) 2.1 The Court examined sections 2(24)(x), 36(1)(va) and 43B of the Act in the context of employees' contribution to PF/ESIC, and the amendments brought in by the Finance Act, 2021, including Explanation 2 to section 36(1)(va), stated in the Memorandum to apply from 01.04.2021 and thus from A.Y. 2021-22 onwards. 2.2 Reliance was placed on the binding jurisdictional precedent of the High Court holding that both employees' and employer's contributions are covered by the amendment to section 43B and by the judgment of the Supreme Court in the context of allowability where payment is made before the due date for filing the return of income. (b) Interpretation and reasoning 2.3 It was undisputed on facts that the assessee deposited the employees' contribution to PF and ESIC after the due dates prescribed under the respective PF/ESIC laws but before the due date for filing the return of income for the relevant assessment year, as evidenced by the tax audit report. 2.4 The Court noted that the issue - whether such delayed employees' contribution, paid prior to the due date of filing the return, is allowable as deduction - already stood concluded in favour of the assessee by the jurisdictional High Court, which had affirmed that: (i) employees' and employer's contributions are to be treated similarly in light of the amendment to section 43B; and (ii) the allowability is governed by the principle that payments made before the due date for filing the return of income qualify for deduction. 2.5 The Court further referred to a co-ordinate bench decision that had applied sections 2(24)(x), 36(1)(va) and 43B harmoniously to hold that employees' contribution paid before the due date of return is an allowable deduction. 2.6 On temporal application, the Court reasoned that the amendments brought in by the Finance Act, 2021 to section 36(1)(va) read with section 43B are effective only from A.Y. 2021-22, and therefore must be construed as prospective. Consequently, they could not be invoked to deny deduction for A.Y. 2018-19. (c) Conclusions 2.7 For A.Y. 2018-19, employees' contribution to PF/ESIC deposited after the due date prescribed under the respective welfare laws but before the due date of filing the return of income under the Act is allowable as a deduction. 2.8 The amendments introduced by the Finance Act, 2021 to section 36(1)(va) read with section 43B, including Explanation 2 to section 36(1)(va), operate prospectively from A.Y. 2021-22 and are not applicable to A.Y. 2018-19. 2.9 The disallowance made by the Assessing Officer and confirmed by the first appellate authority under section 36(1)(va) (read with section 43B) in respect of employees' contribution to PF and ESIC was erroneous and unsustainable, and the impugned order was set aside with the assessee's appeal allowed.