2022 (4) TMI 1677 - AT - Income Tax

Late-paid employees' PF/ESI contributions before return-filing due date: deduction allowed; s.43B treated overriding for AY 2018-19.

Employees' contribution to PF/ESI paid after the due dates under the relevant welfare statutes but before the return-filing due date u/s 139(1) was held ... Deduction of Employees’ Contribution to welfare funds like PF/ESI - CIT(A) upheld the disallowances in terms of amendment brought in by Finance Act, 2021 in Sec. 36(1)(va) as well as in Sec. 43B - HELD THAT:- We find that this issue of disallowance u/s 36(1)(va) r.w.s. 2(24(x) stood squarely covered in assessee’s favor by our decision in lead order titled as M/s Benco Thermal Technologies Private Ltd. [2022 (2) TMI 1217 - ITAT CHENNAI] provisions of Sec.36(1)(va) and Sec.43B operate differently and therefore, any late remittance of Employees’ Contribution beyond due date as specified in relevant statutes governing those funds, would result into denial of deduction to the assessee in terms of Sec. 36(1)(va) r.w.s. 2(24)(x). Accordingly, we would hold that the provisions of Sec.43B would override the provisions of Sec.36(1)(va) and accordingly, the employees’ contribution as paid by the assessee before due date of filing of return u/s 139(1) would still be an allowable deduction notwithstanding the fact that the payment was made beyond due date as specified in the relevant statute governing those welfare funds. So far as the effect of amendment brought in by Finance Act, 2021 is concerned, we find that Finance Act, 2021 has proposed amendment to Sec. 36(1)(va) and Sec.43B to clarify the position that Sec.43B would never apply to such contributions. For the same, an explanation-2 has been inserted in Sec. 36(1)(va) which state that Section 43B would not apply and is presumed never to have been applied to establish the due date under this sub-section. In the present case also, the amendment brought out by Finance Act, 2021 w.e.f. 1-4-2021 i.e. for and from assessment year 2021-22 of Explanation 2 to s. 36(1)(va) of the Act and not retrospectively. Thus, from the above, it is clear that the amendment brought in the statute i.e., by Finance Act, 2021, the provisions of section 36(1)(va) r.w.s. 43B of the Act amended by inserting Explanation 2 is prospective and not retrospective. Hence, the amended provisions of section 43B r.w.s. 36(1)(va) of the Act are not applicable for the assessment year 2018-19 but will apply from assessment year 2021-22 and subsequent assessment years. Hence, this issue of assessee's appeal is allowed. Disallowance u/s 40(a)(ia) - Since the assessee has placed on record copy of Form 26A as required under the rules, we direct CIT(A) to verify the same and delete the disallowance, if the same is found in order. The assessee is directed to provide requisite details / documents. This ground stand allowed for statistical purposes. 1. ISSUES PRESENTED AND CONSIDERED (i) Whether employees' contribution to welfare funds (PF/ESI), deposited after the due dates under the respective welfare statutes but before the due date of filing the return under section 139(1), is allowable as deduction under section 36(1)(va) read with section 2(24)(x) for the relevant assessment year, and whether the Finance Act, 2021 amendments alter the position for that year. (ii) Whether disallowance under section 40(a)(ia) for non-compliance with TDS provisions can be deleted by applying the second proviso to section 40(a)(ia) upon production of Form 26A showing that the payees have paid due taxes, and what verification is required. 2. ISSUE-WISE DETAILED ANALYSIS Issue (i): Deductibility of belated employees' PF/ESI contributions paid before return-filing due date; applicability of Finance Act, 2021 amendments Legal framework (as discussed): The Court considered the interaction of section 2(24)(x) (treating employees' contributions received as 'income'), section 36(1)(va) (allowing deduction if credited to the fund by the 'due date' under the relevant welfare law), and section 43B (allowing deduction on actual payment, including payment up to the due date of filing the return under section 139(1)). The Court also considered the amendments introduced by the Finance Act, 2021 to section 36(1)(va) and section 43B, and the stated effective date of those amendments. Interpretation and reasoning: The Court followed its earlier view that, for the relevant year, section 43B overrides section 36(1)(va) for the purpose of allowing deduction where employees' contributions, though deposited beyond the welfare-statute due dates, were deposited before the due date for furnishing the return under section 139(1). On the effect of Finance Act, 2021, the Court accepted that the amendments were intended to apply from the specified effective date and, for the year under consideration, operate prospectively; hence, they could not be applied to deny deduction for payments made before the section 139(1) due date in that year. Conclusion: The disallowance of employees' PF/ESI contributions was deleted. The revenue authorities were directed to allow the deduction for the stated amount since the facts were treated as covered by the adopted legal position for the assessment year in question. Issue (ii): Disallowance under section 40(a)(ia) and benefit of second proviso upon furnishing Form 26A Legal framework (as discussed): The Court addressed section 40(a)(ia) disallowance for failure to comply with TDS provisions and the assessee's claim for relief under the second proviso to section 40(a)(ia), supported by Form 26A under the applicable rules. Interpretation and reasoning: The Court noted that Form 26A had been placed on record at this stage. Since the earlier confirmation of disallowance was based on non-furnishing of Form 26A, the Court directed factual verification by the appellate authority. The Court confined its direction to verification of whether Form 26A and related particulars satisfy the prescribed requirements, and if so, the disallowance should not survive. Conclusion: The matter relating to section 40(a)(ia) was remitted for verification of Form 26A and connected details, with a direction to delete the disallowance if the form and supporting material are found in order. The ground was allowed for statistical purposes, subject to the assessee furnishing requisite documents.