TaxTMI 
TaxTMI 
2022 (1) TMI 367
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....e on facts and law as the addition is outside the scope of section 143(1)(a). 3. Because the action is being challenged on facts and law for disallowance of Employees Provident Fund & Employees ESI amounting Rs. 13,73,715/- amounting Rs. u/s. 36(1)(va) overlooking that the said amount has been deposited before the filing of return u/s. 139(1). 4. Because the action is being challenged on facts and law for disallowance of Employees Provident Fund & Employees ESI amounting Rs. 13,73,715/- amounting Rs. u/s. 36(1)(va) considering the amendment made by Finance Bill 2021 as explanatory in nature and the question of being prospective or retrospective does not arise whereas per assessee, the said amendment is applicable from AY 2021-22. 5. For any consequential relief and/ or legal claim arising out of this appeal and for any addition, deletion, amendment and modification in the grounds of appeal before the disposal of the same in the interest of substantial justice to the assessee." 3. Facts giving rise to the present appeal are that the return of income was filed by the assessee on 04.10.2018 declaring total income of Rs. 4,26,804/-. Intimation u/s. 143(1) ....
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....hat several courts have held that the employee's contribution to PF/ESI even if paid late under the respective Act, is to be allowed as a deduction u/s. 43B, as long it is paid within the time available u/s. 139(1). This is based on the reasoning that employee's contribution to PF/ESI is covered u/s. 43B (b). The appellant has further submitted that his case is covered by the decisions of the various High Courts and ITATs and therefore the disallowance made by the CPC should be deleted. However the Act has now been amended. * The Finance Act 2021 has amended sec. 43B as well as see 36(1)(va) by insertion of Explanations to those sections. Explanation 5 to Section 43B, reads as under: Explanation 5. -For the removal of doubts, it is hereby clarified that the provisions of this section shall not apply and shall be deemed never to have been applied to a sum received by the assessee from any of his employees to which the provisions of sub-clause (x) of clause (24) of section 2 applies. Explanation 2 to section 36(1)(va) reads as under: Explanation 2.-For the removal of doubts, it is hereby clarified that the provisions of section 43B shall no....
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....ction 43B. According to it, if any sum towards employer's contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of the employees is actually paid by the assessee on or before the due date for furnishing the return of the income under sub-section (1) of section 139, assessee would be entitled to deduction under section 43B and such deduction would be admissible for the accounting year. This provision does not cover employee contribution referred to in clause (va) of sub-section (1) of section 36 of the Act. Though section 43B of the Act covers only employer's contribution and does not cover employee contribution, some courts have applied the provision of section 43B on employee contribution as well. There is a distinction between employer's contribution and employee's contribution towards welfare fund. It may be noted that employee's contribution towards welfare funds is a mechanism to ensure the compliance by the employers of the labour welfare laws. Hence, it needs to be stressed that the employer's contribution towards welfare funds such as ESI and PF needs to be clearly distinguished from the employee....
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....ion 5 to sec. 43B & Expl. 2 to sec. 36(1)(va) would apply to the present AY. To decide this, a little history of sec. 43B and subsequent amendments would be in order. Sec. 43B was brought into the statute book w.e.f. 01.04.1984, thereafter, the proviso to sec. 43B was inserted w.e.f. 01.04.1988, while Explanation 2 to that proviso was inserted w.r.e.f. 01.04.1984 by the Finance Act 1989. before the insertion of the proviso and Explanation 2, the words 'any sum payable' was interpreted by various high courts to mean that 'to attract the provisions of section 43B it is not sufficient to have incurred the liability. Rather the payment has also to be come due. E.g. Sales tax collected for March ending quarter does not become due by 31st March and though by collection of such sales tax in the last quarter, liability stands incurred, the same does not fall due by 31st March and hence no disallowance can be made u/s. 43B in respect of such sales tax'. This was the interpretation of sec. 43B before insertion of Proviso to Section 43B. The proviso inserted w.e.f. 01.04.1988 allowed payment till the due date for filing the return. The proviso was apparently prospective as it ....
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....xplanation 2 is retrospective, the first proviso will have to be so construed. Read in this light also, the proviso has to be read into section 43B from its inception along with Explanation 2. 8. This position is reinforced by a departmental Circular No. 550 dated 1-1-1990 (See Taxmann's Direct Taxes Circulars, Vol. 4, 1995 edn., pp. 2.1741, 2.1750): The departmental understanding also appears to be that section 43B, the proviso and Explanation 2 have to be read together as expressing the true intention of section 43B. Explanation 2 has been expressly made retrospective. The first proviso, however, cannot be isolated from Explanation 2 and the main body of section 43B. Without the first proviso, Explanation 2 would not obviate the hardship or the unintended consequences of section 43B. The proviso supplies an obvious omission. But for this proviso the ambit of section 43B becomes unduly wide bringing within its scope those payments which were not intended to the prohibited from the category of permissible deductions. * It is evident from the above observations of the Hon'ble Supreme Court that the main section, the explanation and the intention of....
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..../is to ensure that the amount paid is allowed as an expenditure only when payment is actually made. We do not think that the legislative intent and objective is to treat belated payment of Employee's Provident Fund (EPD) and Employee's State Insurance Scheme (ESI) as deemed income of the employer under section 2(23)(x) of the Act." Therefore, respectfully following the ratio laid down by the Hon'ble Jurisdictional High Court in the above-mentioned binding precedents, I hereby direct the Assessing Officer to delete the disallowance. Thus, grounds raised by the assessee are allowed. 11. In the result, the appeal of the assessee is allowed. 12. Now, we take up assessee's appeal in ITA No. 1287/Del/2021 pertaining to Assessment Year 2019-20. The assessee has raised following grounds of appeal:- 1. "Because the action is under challenge on facts & law for increasing income amounting Rs. 19,30,330/ - u/s. 143(1). 2. Because the action for making disallowance of Employees Provident Fund amounting & Employees ESI amounting Rs. 16,70,007/- u/s. 143(1)(a) is under challenge on facts and law as the addition is outside the scope of section 143(1)(a). ....