NEO HY LAMINATES PVT. LTD.,DELHI vs. ITO WARD 18(1), DELHI

आदेश /O R D E R PER C. N. PRASAD, J.M. :

1. These two appeals are filed by the assessee against the orders of the ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (hereinafter referred to NFAC) dated 28.08.2021 for assessment years 2018-19 and 2019-20 in disallowing employer / employee contribution to ESI and PF.

2. The ld. Counsel for the assessee submits that in so far as assessment year 2018-19 is concerned, the Centralized Processing 1

I.T.A. Nos. 402 & 403/Del/2022 Centre (CPC) Bangaluru, while passing the intimation under Section 143(1) of the Income Tax Act, 1961 (the Act) on 4.03.2020 disallowed an amount of Rs.7,78,194/- comprising of employer contribution of Rs.4,40,547/- and employee contribution of Rs.3,37,647/- to PF and ESI. For the assessment year 2019-20 the CPC, Bangaluru, disallowed Rs.4,25,495/- in respect of employer contribution to ESI and PF. The ld. Counsel submits that the CIT (Appeals) sustained the disallowance in respect of contribution made by both employer and employee towards PF and EASI. In view of the Amendments brought in by the Finance Act, 2021 by way of insertion of Explanation 2 and Explanation 5 to the provisions of Section 36(1)(va) and 43B of the Act. The ld. Counsel submits that this Amendment is applicable only in respect of employee contribution and this is only prospective in nature as it was specifically mentioned that it is with effect from 1.04.2021. Therefore, the ld. CIT (Appeals) is not justified in applying the Amendments even to the employer contribution. In support of his contentions, the ld. Counsel for the assessee placed reliance on the following decisions:-

I.T.A. Nos. 402 & 403/Del/2022

3. I have heard the submissions of the ld. DR, perused the orders of the authorities below. While processing the return under Section 143(1) of the Act, no disallowance towards contribution to employees’ PF and ESI is warranted as this issue is highly debatable in nature. Even otherwise I find that the issue in appeal is squarely covered by the decision of the jurisdictional High Court in the case of CIT Vs. AIMIL Ltd. 321 ITR 508. Ratio of this decision squarely applies to the facts of the assessee’s case.

4. Further I also observe that recently this Tribunal in a batch of appeals in the cases of Raj Kumar Vs. ITO CPC Bangaluru in and other appeals by order dated 28.02.2022 considering various decisions rendered by various High Courts and the Tribunals held that the amendment brought in by Finance Act, 2021 is effective from 1.04.2021 and no disallowance is called for, on belated payment of employees’ contribution to ESI and PF in case the assessee deposited the said contribution before due date for filing of return of income under Income Tax Act. While holding so the Tribunal observed as under:-

“21. In this background, the various decisions of the Hon’ble Jurisdictional High Courts have been perused.

I.T.A. Nos. 402 & 403/Del/2022 such amounts as having been duly deposited, which were infact deposited within the period prescribed (i.e. 15+5 days in the case of EPF and 21 days + any other grace period in terms of extent notification).

I.T.A. Nos. 402 & 403/Del/2022 2003, he still confirmed the addition made by the Assessing Officer on the ground that no documentary proof was given to support that payment was in fact made by the assessee. The assessee filed an application under section 154 of the Act before the CIT(A) for rectification of the mistake. After having satisfied that payment had, in fact, been made, the CIT(A) rectified the mistake and deleted the addition by holding that the assessee had made the payment before the due date of filing of the return, which was a fact apparent from the record.” The decision of ITAT: 27. The Co-ordinate Bench of ITAT relied on the judgment of Hon’ble Supreme Court in the case of CIT Vs. Vinay Cements Ltd. 213 CTR 268 to support its decision to the effect that if the employers' as well as employees' contribution towards provident fund and ESI is paid before the due date of filing of return, no disallowance can be made by the Assessing Officer.

I.T.A. Nos. 402 & 403/Del/2022 it enacted by Parliament in the Seventy-second Year of the Republic of India as follows:— CHAPTER I PRELIMINARY Short title and commencement. 1. (1) This Act may be called the Finance Act, 2021. (2) Save as otherwise provided in this Act,— (a) sections 2 to 88 shall come into force on the 1st day of April, 2021; (b) sections 108 to 123 shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint. Amendment of section 36.

I.T.A. Nos. 402 & 403/Del/2022 Section (1) of Section 139 have been dealt at length. The gist is as under: “Rationalization of various Provisions Payment by employer of employee contribution to a fund on or before due date Clause (24) of section 2 of the Act provides an inclusive definition of the income. Sub-clause (x) to the said clause provide that income to include any sum received by the assessee from his employees as contribution to any provident fund or superannuation fund or any fund set up under the provisions of ESI Act or any other fund for the welfare of such employees. Section 36 of the Act pertains to the other deductions. Sub-section (1) of the said section provides for various deductions allowed while computing the income under the head Profits and gains of business or profession‘. Clause (va) of the said sub-section provides for deduction of any sum received by the assessee from any of his employees to which the provisions of sub-clause (x) of clause (24) of section 2 apply, if such sum is credited by the assessee to the employee's account in the relevant fund or funds on or before the due date. Explanation to the said clause provides that, for the purposes of this clause, "due date to mean the date by which the assessee is required as an employer to credit an employee's contribution to the employee's account in the relevant fund under any Act, rule, order or notification issued there-under or under any standing order, award, contract of service or otherwise. Section 43B specifies the list of deductions that are admissible under the Act only upon their actual payment. Employer's contribution is covered in clause (b) of section 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, 8

I.T.A. Nos. 402 & 403/Del/2022 some courts have applied the provision of section 43B on employee contribution as well. There is a distinction between employer 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‘s contribution towards welfare funds. Employee‘s contribution is employee own money and the employer deposits this contribution on behalf of the employee in fiduciary capacity. By late deposit of employee contribution, the employers get unjustly enriched by keeping the money belonging to the employees. Clause (va) of sub-section (1) of Section 36 of the Act was inserted to the Act vide Finance Act 1987 as a measures of penalizing employers who mis- utilize employee‘s contributions. Accordingly, in order to provide certainty, it is proposed to – (i) amend clause (va) of sub-section (1) of section 36 of the Act by inserting another explanation to the said clause to clarify that the provision of section 43B does not apply and deemed to never have been applied for the purposes of determining the ―due date under this clause; and (ii) amend section 43B of the Act by inserting Explanation 5 to the said section to clarify that the provisions of the said section do not apply and deemed to never have been applied to a sum received by the assessee from any of his employees to which provisions of sub-clause (x) of clause (24) of section 2 applies. These amendments will take effect from 1st April, 2021 and will accordingly apply to the assessment year 2021- 22 and subsequent assessment years.” [Clauses 8 and 9] 33. Thus, the matter has been finally decided and the controversy has been put to rest.

I.T.A. Nos. 402 & 403/Del/2022 Judgments of various Hon’ble Courts disallowing the delayed payment, Judgments of various Hon’ble Courts disallowing the delayed payment, provisions of Section 2(24)(x), Section 36(1)(va), Section 43B, Section 139(1) of the Income Tax Act, 1961, provisions of Finance Act 2021, Memorandum explaining the provisions in Finance Bill, 2021 and the specific amendments which will take effect from 01.04.2021, we hereby hold that no disallowance is called for belated payment of the employee’s contribution to the respective ESI and EPF fund in the case of assessee who have deposited the same before the due date of filing of Income Tax Return. “ Following the said decisions, I direct the Assessing Officer / CPC to delete the disallowance made to employees’ as well as employer’s contribution to EPF and ESI as the same were remitted before the due date of filing of return of income.

Order pronounced in the open court on : 29/04/2022.