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Income Tax Appellate Tribunal, DELHI BENCH ‘SMC’ NEW DLEHI
Before: SHRI C.M. GARG
These appeals filed by the assessee are directed against the orders dated 29.07.2021 passed by ld. CIT(A)- National Faceless Appeal Centre (NFAC), Delhi, for the assessment year 2018-19 and 2019-20. By way of various grounds raised in these appeals, the assessee has challenged the disallowance of Rs.10,87,441/- for A.Y. 2018-19 and 8,39,152/- for A.Y. 2019-20 made by the Assessing Officer and confirmed by ld. CIT(A) on account of delay in depositing employees contribution to PF & ESI, ignoring the fact that the same stood deposited before the due date of filing the return of income.
As can be culled out from the records and grounds of appeal
s, the solitary issue involved in these appeals is regarding disallowance u/s. 36(1)(va) of the Income-tax Act (“the Act” for short) on account of delay in depositing the employees’ contribution to ESI and PF. The Central Processing Centre (“CPC”), Bengaluru vide intimations dated 16.10.2019 and 18.04.2020 u/s 143(1) of the Income Tax Act, 1961 (“the Act”) for Assessment Years 2018-19 & 2019-20 respectively, has made adjustment of taxes after considering the disallowance of expenditure on account of delay in deposit of employees contribution to PF & ESI. The disallowances so made stood confirmed by the ld. CIT(A), National Faceless Appeal Centre, Delhi vide impugned orders on the premise that since the assessee did not deposit the employees’ contribution to PF and ESI before the due date, the assessee is not entitled to claim deduction u/s. 36(1)(va) of the Act.
3. None is present on behalf of the assessee. Ld. Sr. DR contended that once the assessee failed to deposit employees’ contribution to PF & ESI before due date as prescribed in the ESI & PF Act, the decision of ld. CIT(A) does not call for any interference.
4. On perusal of the appeal record, I observe that in this case, the assessee has challenged the disallowances made on account of delay in depositing employees’ contribution to PF and ESI, which was duly deposited on or before the due date of filing the return of income u/s. 139(1) of the Act. On being asked by the Bench, ld. Sr.
DR did not dispute that in these cases, the employees contribution to PF and ESI was duly deposited by the assessee before due date of filing the return u/s. 139(1) of the Act. The ld. DR in all fairness also did not controvert that the sole issue in these appeals is covered by various orders of the co-ordinate Benches of Tribunal.
Further, I find that the issue stands decided in favour of the assessee by Hon’ble Allahabad High Court and Delhi High Court in the following decisions : Sagun Foundry (P) Ltd., vs. CIT, 145 DTR 265 (All) has held in favour of the assessee and adjudged that; “By way of First Proviso Section 43-B, an incentive/relaxation was sought to be given in respect of tax, duty, cess or fee by explicitly stating that if such tax duty cess or fee is paid before the date of filing of the return under Act 1961, Assessee would then be entitled to deduction. This relaxation/incentive was restricted only to tax, duty, cess and fee. It did not apply to contributions to labour welfare funds. The reason appears to be that the employer should not sit on the collected contributions and deprive workmen of the rightful benefits under social welfare legislations by delaying payment of contributions to the welfare funds. “27. ... In the result when contribution had been paid, prior to filing of return under Section 139(1), Assessee/employer would be entitled for deduction.... ” 28. .... we find that irrespective of the fact that deduction in respect of sum payable by employer contribution was involved, but Court did not restrict observations, findings and declaration of law to that context hut looking to the objective and purpose of insertion of Section 43B applied it to both the contributions. It also observed clearly that Section 43B is with a non-obstante clause and therefore override even if, anything otherwise is contained in Section 36 or any provision of Act 1961.
Therefore, we are clearly of the view that law laid down by High Courts of Karnataka, Rajasthan, Punjab & Haryana, Delhi, Bombay and Himachal Pradesh have rightly applied Section 43B in respect to both contributions i.e. employer and employee. ...
In view of above all the questions formulated above are answered against Revenue and in favour of Assessee.
Appeal is therefore allowed.... • CIT vs. AIMIL LIMITED, (2010) 188 Taxman 265 (Del.) "If the employee’s contribution is not deposited by the due date prescribed under the relevant acts and is deposited late, the employer not only pays interest on delayed payments but can incur penalties also, for which specific provisions are made in the provident fund act. Therefore, the act permits the employer to make the deposit with some delay, subject to aforesaid consequences. Insofar as the Income Tax Act is concerned, the assessee can set the benefit if the actual payment is made before due date of ft line the return under section 139(1)". PR. C1T vs. PRO INTERACTIVE SERVICE (INDIA) PVT. LTD., 983/2018, DATED 10.09.2018 (DEL) "In view of the judgement of the Division Bench of Delhi High Court in Commissioner of Income-Tax versus AIMIL Ltd., [2010] 321 ITR 508 (Del) the issue is covered against the Revenue and, therefore, no substantial question of law arises for consideration in this appeal. The legislative intent was/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(24)(x) of the Act."
The co-ordinate Benches of Tribunal, following the above decisions and various other decisions, are consistently holding that if the assessee has deposited the employees’ share of contribution to PF & ESI before the due date of filing of return u/s. 139(1) of the Act, then no disallowance u/s. 36(1)(va) can be made. It has further been held that the amendment to the provisions of section 43B and 36(1)(va) of the Act by the Finance Act, 2021 has to be construed as prospective and applicable for the period after 01.04.2021. It is held that this provision imposes a liability on the assessee and therefore, cannot be construed as applicable with retrospective effect since the legislature has not specifically said so. Since the assessee in the instant case has admittedly deposited the employee’s contribution to PF & ESI before the due date of filing of return of income, therefore, I am of the considered opinion that the ld. CIT(A) is not justified in sustaining the disallowance made by the CPC. I, therefore, direct the Assessing Officer to delete the disallowances in the hands of the assessee for both the years under consideration.