Employees' PF/ESI payments made after welfare due dates but before return filing deadline held deductible; 2021 change prospective.

The dominant issue was whether employees' PF/ESI contributions paid after the due dates under the respective welfare statutes but before the due date for filing the return under s. 139(1) are deductible under s. 36(1)(va) r/w s. 2(24)(x), and whether Finance Act, 2021 (inserting Explanation 2) applies retrospectively. The ITAT held that, prior to Explanation 2, there was ambiguity on the relevant "due date," and applying the principle against retrospective imposition of hardship as recognised by SC, the amendment was construed as prospective from AY 2021-22. Consequently, for AY 2018-19 the disallowance was deleted and the appeal was allowed.

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1. ISSUES PRESENTED AND CONSIDERED
(i) Whether employees' contribution to PF/ESI deposited after the due dates under the respective welfare laws but before the due date for filing the return under section 139(1) is allowable as deduction, or disallowable under section 36(1)(va) read with section 2(24)(x).
(ii) Whether the amendments made by the Finance Act, 2021 to section 36(1)(va) and section 43B (by inserting the stated Explanations) apply retrospectively to the relevant assessment years, so as to deny deduction even where payment was made before the section 139(1) due date.
(iii) Whether the delay in filing the appeals should be condoned on the ground of COVID-19 lockdown conditions.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (iii): Condonation of delay in filing appeals
Legal framework (as discussed): The Tribunal considered the request for condonation of delay based on the stated cause.
Interpretation and reasoning: The Tribunal accepted the explanation that the delay arose due to lockdown conditions during the COVID-19 pandemic. Despite opposition, the Tribunal found the cause sufficient.
Conclusion: The delay was condoned and the appeals were admitted for adjudication on merits.

Issues (i) & (ii) (grouped): Deductibility of employees' PF/ESI contribution paid before section 139(1) due date; effect of Finance Act, 2021 amendments
Legal framework (as discussed): The Tribunal examined the interaction between section 2(24)(x) (treating employees' contribution received as income), section 36(1)(va) (allowing deduction subject to deposit by the "due date" under the relevant welfare law), and section 43B (allowing specified statutory payments on actual payment, including where paid up to the due date for filing the return under section 139(1)). The Tribunal also considered the Finance Act, 2021 amendments inserting Explanations to clarify that section 43B does not apply to employees' contributions governed by section 36(1)(va).
Interpretation and reasoning: The Tribunal held that, for the assessment years in question, the matter stood covered by binding/precedential judicial view applied by the Tribunal, under which section 43B was taken to override section 36(1)(va) for purposes of allowing deduction where employees' PF/ESI contributions, though deposited after the welfare-law due dates, were deposited before the due date of filing the return under section 139(1). The Tribunal further rejected the contention that Finance Act, 2021 amendments operate retrospectively for these years; it applied the view that the amendments were prospective, taking effect from 01.04.2021 (assessment year 2021-22 onwards), consistent with the stated effective date discussed in the judgment and the coordinate bench reasoning adopted by the Tribunal. The Tribunal also noted that concerns about employees' interests due to delayed deposit are addressed by consequences (interest/penalties) under the welfare statutes, and were not determinative of deductibility under the Income-tax Act once payment was made before the section 139(1) due date.
Conclusions: (a) Employees' PF/ESI contributions deposited before the due date for filing the return under section 139(1) were held allowable as deduction for the relevant years, notwithstanding deposit beyond the due dates under the PF/ESI laws. (b) The Finance Act, 2021 amendments to section 36(1)(va) and section 43B were held to apply prospectively and therefore did not govern the assessment years under appeal. (c) The disallowances were directed to be deleted and income recomputed accordingly.

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