Employees' NPS contributions allowed as deduction despite late remittance under section 36(1)(va)

The ITAT Ahmedabad allowed the assessee's appeal regarding disallowance of employees' contribution to National Pension Scheme (NPS) under section 36(1)(va). The AO had disallowed the amount claiming late remittance beyond prescribed dates under PFRDA Act, 2013. The ITAT held that no due date was prescribed in PFRDA Act, 2013 for NPS payments, and all payments were made before filing return under section 139(1). Following the precedent in Adani Petronet case, the ITAT ruled the adjustment unjustified and treated the amount as allowable under Section 43B(b), noting that NPS Rules, 2021 apply only to government servants, not the general public.

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Issues Involved:

1. Validity of the order under Section 250 of the Income Tax Act by the CIT(A).
2. Disallowance of Rs. 3,34,28,177/- related to employee contributions to the National Pension Scheme (NPS) under Section 36(1)(va).
3. Applicability of Section 43B to employee contributions to NPS.
4. Consideration of judicial precedents and legislative amendments in the context of NPS contributions.

Issue-wise Detailed Analysis:

1. Validity of the order under Section 250 of the Income Tax Act by the CIT(A):

The appellant challenged the order passed by the Ld. CIT(A) under Section 250, arguing that it was arbitrary, erroneous, and contrary to the provisions of law and facts. The appellant contended that the CIT(A) failed to consider the facts and submissions made by the appellant, rendering the order bad in law and deserving cancellation.

2. Disallowance of Rs. 3,34,28,177/- related to employee contributions to the National Pension Scheme (NPS) under Section 36(1)(va):

The core issue revolved around the disallowance of Rs. 3,34,28,177/- for late payments of employee contributions to the NPS. The CIT(A) upheld the Assessing Officer's disallowance, drawing parallels with judicial precedents concerning Provident Funds (PF) and Employees' State Insurance (ESI). The CIT(A) observed that the amount represented late payments and was added as unpaid employee contributions under Section 43B.

3. Applicability of Section 43B to employee contributions to NPS:

The appellant argued that the amount was deposited before the filing of the income tax return under Section 139(1) and should be allowed as a deduction. The appellant cited legal precedents indicating that late payments of PF and ESI contributions could still be claimed as deductions under Section 43B if made before the return filing deadline. However, the CIT(A) noted that amendments in the Finance Bill of 2021 clarified that Section 43B does not apply to amounts received from employees, reinforcing that it pertains solely to employer contributions.

4. Consideration of judicial precedents and legislative amendments in the context of NPS contributions:

The appellant's counsel argued that the CIT(A) erroneously applied principles relevant to PF and ESI contributions to NPS contributions, which are governed by the Pension Fund Regulatory and Development Authority (PFRDA) Act, 2013. The counsel highlighted that the PFRDA Act does not specify a due date for NPS contributions, and all payments were made before the return filing deadline. The counsel relied on favorable rulings from ITAT Ahmedabad in similar cases, where employee contributions to NPS were recognized as valid when made before the return filing deadline.

The tribunal considered the rival contentions and judicial precedents, including the cases of Adani Petronet (Dahej) Port (P.) Ltd. and Adani Hazira Port Ltd., where it was held that the impugned adjustment on NPS payments was not justified due to the absence of a prescribed due date in the PFRDA Act. The tribunal also noted that the National Pension System Rules, 2021, apply only to government servants and not to the public at large.

Conclusion:

In light of the above discussion and judicial precedents, the tribunal allowed the appeal of the assessee. The tribunal concluded that the disallowance of employee contributions to NPS was not justified, as all payments were made before the filing of the return of income, and there was no due date prescribed by the PFRDA Act. The order was pronounced in open court on 14/10/2024.

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