2022 (5) TMI 1699 - AT - Income Tax

Employees' PF/ESI contributions paid after statutory due dates but before s.139(1) return deadline allowed as deductible.

The dominant issue was whether employees' contributions to PF/ESI deposited after the respective statutory due dates but before the return-filing due date ... Delayed contribution of employees' contribution to PF and ESI - amounts were paid before the due date for filing the return u/s 139(1) HELD THAT:- As relying on M/S. THE CONTINENTAL RESTAURANT & CAFÉ CO. [2021 (10) TMI 843 - ITAT BANGALORE], M/S ESSAE TERAOKA PVT LTD [2014 (3) TMI 386 - KARNATAKA HIGH COURT] and M/S SPECTRUM CONSULTANTS INDIA (P.) LTD. [2013 (7) TMI 414 - KARNATAKA HIGH COURT] as amendment to section 36(1)(va) and 43B of the I.T. Act will not have application for the relevant assessment year, namely assessment year 2019-20. Accordingly, we direct the A.O. to grant deduction in respect of employees' contribution to PF and ESI since the assessee has made the payment before the due date of filing of return u/s 139(1) of the I.T. Act. Appeal filed by the assessee stands allowed. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether employees' contribution to PF/ESI, though not deposited within the due dates under the respective welfare statutes, is deductible where the amounts were paid before the due date for filing the return under section 139(1) for the relevant assessment year. 2. Whether the Finance Act, 2021 amendments to sections 36(1)(va) and 43B apply to the relevant assessment year so as to deny deduction for employees' contribution deposited after the statutory due dates but before the section 139(1) due date. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Deductibility of employees' contribution to PF/ESI when paid before the section 139(1) due date but after the respective statutory due dates Legal framework (as discussed by the Court/Tribunal): The Tribunal examined the allowability of deduction of employees' contribution to PF/ESI in the context of section 36(1)(va) read with section 43B, and the relevance of payment being made before the due date for filing the return under section 139(1). Interpretation and reasoning: The Tribunal treated the controversy as covered by binding jurisdictional High Court decisions holding that deduction is allowable if the employees' contribution is paid prior to the due date for filing the return under section 139(1), notwithstanding delay vis-à-vis the due date under the respective PF/ESI laws. The Tribunal expressly preferred and applied the jurisdictional view and did not accept the contrary approach relied upon in the impugned appellate order. Conclusions: Employees' contribution to PF/ESI deposited before the due date under section 139(1) is deductible for the relevant year, even if not deposited within the due dates prescribed under the respective welfare enactments. The disallowance was directed to be deleted and deduction granted. Issue 2: Applicability of Finance Act, 2021 amendments to sections 36(1)(va) and 43B to the relevant assessment year Legal framework (as discussed by the Court/Tribunal): The Tribunal considered the amendments to sections 36(1)(va) and 43B introduced by Finance Act, 2021, and whether they operate retrospectively or only prospectively, including the effective date stated in the amendment. Interpretation and reasoning: The Tribunal reasoned that, for the relevant assessment year, the governing legal position (as per jurisdictional High Court) allowed deduction when payment was made before the section 139(1) due date. Applying the Tribunal's adopted reasoning, the Finance Act, 2021 amendments would alter that position adversely to the assessee; hence they could not be applied to the year under consideration. The Tribunal also noted that the amendments were stated to be effective from 01.04.2021 and therefore applicable from assessment year 2021-22 onwards. Conclusions: The Finance Act, 2021 amendments to sections 36(1)(va) and 43B were held inapplicable to the relevant assessment year (2019-20). Deduction was allowed because payment was made before the due date for filing the return under section 139(1), and the assessing authority was directed accordingly.