SHARAN FASHIONS,BENGALURU vs. INCOME TAX OFFICER, WARD- 5(2)(4), BANGALORE

The assessee has filed this appeal challenging the order dated 01/01/2022 passed by Ld. CIT(A), National Faceless Appeal Centre, Delhi and it relates to the assessment year 2018-19. The solitary issue urged in this appeal relates to disallowance of Rs.6,31,247/-, being employees contribution to provident fund & ESI, made u/s 36(1)(va) of the Income-tax Act,1961 ['the Act' for short].

The assessee filed its return of income for AY 2019-20 on 05.10.2018. The return of income was processed u/s 143(1) of the Act, wherein the above said disallowance was made u/s 36(1)(va) of Page 2 of 6 the Act on the ground that the employees contribution to PF and ESI has been paid by the assessee beyond the due date prescribed in the respective Acts.

The assessee challenged the above said addition by filing appeal before Ld. CIT(A) contending that the disallowance should not be made, since the above said payments have been made prior to the due date for filing return of income prescribed u/s 139(1) of the Act. In this regard, the assessee relied on various decisions in support of its claim. However, the Ld. CIT(A) rejected the contentions of the assessee by following the amendment brought in by the Finance Act, 2021 in sections 43B and 36(1)(va) of the Act. Aggrieved, the assessee has filed this appeal before us.

The learned AR submitted that the assessee has remitted the employees contribution of PF & ESI before the due date prescribed u/s 139(1) of the Act, even though the contributions were paid in few instances beyond the due date prescribed in the respective Statutes. He invited my attention to the details of dates of payments given in the Statement of facts.

The Ld Standing Counsel Mr Ganesh R Ghale, however, submitted that the amendment made in Finance Act 2021 is a clarificatory amendment and hence it should apply retrospectively to the year under consideration also. He submitted that the intention of the legislature has been clarified by way of amendment made in Finance Act, 2001. In this regard, he placed his reliance on the decision rendered by Hon’ble Supreme Court in the case of Zile Singh vs. State of Haryana (Appeal (civil) 6638 of 2004).

In the case of M/s. Shakuntala Agarbathi Company Vs. DCIT (supra), the Tribunal has followed the decision rendered by the Hon’ble jurisdictional Karnataka High Court in the case of Essae Teraoka Pvt. Ltd Vs. DCIT ((2014)(43 taxmann.com 33)(Kar), wherein the Ho’ble High Court has held that the assessee would be entitled to deduction of employees’ contribution to PF and ESI provided that the payments were made prior to the due date of filing of the return of income u/s 139(1) of the I.T.Act. It was further held by the ITAT that amendment by Finance Act, 2021, to section 36[1][va] and 43B of the Act is not clarificatory. The relevant finding of the ITAT in the case of M/s. Shakuntala Agarbathi Company Vs. DCIT (supra), reads as follows: “7. We have heard rival submissions and perused the material on record. Admittedly, the assessee has remitted the employees' contribution to ESI before the due date for filing of return u/s 139(1) of the I.T.Act. The Hon'ble jurisdictional High Court in the case of EssaeTeraoka (P.) Ltd. v. DCIT reported in 366 ITR 408 (Kar.) has categorically held that the assessee would be entitled to deduction of employees' contribution to ESI provided the payment was made prior to the due date of filing of return of income u/s 139(1) of the I.T.Act. The Hon'ble jurisdictional High Court differed with the judgment of the Hon'ble Gujarat High Court in the case of CIT v. Gujarat State Road Transport Corporation reported in 366 ITR 170 (Guj.). The Hon'ble High Court was considering following substantial question of law:- "Whether in law, the Tribunal was justified in affirming the finding of Assessing Officer in denying the appellant's claim of Page 4 of 6 deductions of the employees contribution to PF/ESI alleging that the payment was not made by the appellant in accordance with the provisions u/s 36[1][va] of the I.T.Act?"

The submission of Mr.Aravind, learned counsel for the revenue that if the employer fails to deduct the employees' contribution on or before the due date, contemplated under the provisions of the PF Act and the PF Scheme, that would have to be treated as income within the meaning of Section 2(24)(x) of the IT Act and in which case, the assessee is liable to pay tax on the said amount treating that as his income, deserves to be rejected.

Therefore, the amended provisions of section 43B as well as 36(1)(va) of the I.T. Act are not applicable for the assessment year under consideration. By following the binding decision of the Hon’ble jurisdictional High Court in the case of Essae Teraoka Pvt. Ltd Vs. DCIT (supra), the employees’ contribution paid by the assessee before the due date of filing of return of income u/s 139(1) of the I.T. Act is an allowable deduction. Accordingly, we decide this issue in favour of the assessee and the disallowance made by the Assessing Officer is deleted.

In the result, the appeal filed by the assessee is allowed.