Delayed PF and ESI contribution disallowance under processing provisions was held unsustainable for pre-amendment assessment years.

Delayed employees' contribution to provident fund and ESI, deposited after the welfare-law due dates but before the return-filing due date, was examined in relation to processing under section 143(1)(a) and rectification under section 154. The Tribunal noted that, for assessment years 2019-20 and 2020-21, the legal position was unsettled and the jurisdictional High Court view favoured allowance, while the Finance Act, 2021 amendment to section 36(1)(va) read with section 43B was stated to apply prospectively from assessment year 2021-22. On that basis, the CPC adjustment and its retention in rectification were held unsustainable, and the disallowance was deleted.

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Issues: Whether the disallowance of delayed employees' contribution to provident fund and employees' state insurance could be made through processing under section 143(1)(a) and retained in rectification under section 154 for assessment years 2019-20 and 2020-21, and whether the amendment to section 36(1)(va) read with section 43B inserted by the Finance Act, 2021 applied to those years.

Analysis: The adjustment related to employees' contribution deposited after the due dates prescribed under the relevant welfare statutes but before the due date for filing the return. The Tribunal noted that the Supreme Court decision in Checkmate Services was delivered later, whereas at the relevant time there were divergent judicial views and the jurisdictional High Court view was in favour of allowance. It further noted that the Finance Act, 2021 amendments to section 36(1)(va) and section 43B were stated to operate from 1 April 2021 and therefore from assessment year 2021-22 onwards. On that basis, the Tribunal held that the CPC could not have made the impugned adjustment under section 143(1)(a) or sustained it under section 154 for the years under appeal.

Conclusion: The disallowance was deleted and the issue was decided in favour of the assessee.

Final Conclusion: The appeals succeeded because the impugned additions for delayed employees' PF and ESI contributions were held unsustainable for the assessment years in question.

Ratio Decidendi: An adjustment disallowing employees' contribution to welfare funds cannot be made under section 143(1)(a) for assessment years prior to the prospective operation of the Finance Act, 2021 amendment, where the issue was governed by the then-prevailing legal position and the contribution was otherwise deposited before the return-filing due date.

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