GANESH SAND BLASTING WORKS,HYDERABAD vs. INCOME TAX OFFICER, WARD 11(1), HYDERABAD

There is a delay of 135 days in filing of this appeal for which the assessee has filed condonation petition along with an affidavit stating the reasons therein. After considering the contents of the application and after hearing the learned DR, the delay in filing of this appeal is condoned and the appeal is admitted for adjudication.

Although a number of grounds have been raised by the assessee, however, these all relate to the order of the CIT(A)/ NFAC in sustaining the disallowance of Rs.2,05,549/- by the Assessing Officer u/s 36(1)(va) r.w.s. 2(24)(x) of the Act on account of delayed deposit of Employee’s Contribution towards PF & ESI.

Facts of the case, in brief, are that the assessee is a partnership firm and filed its return of income declaring total income of Rs.14,53,745/-. The CPC Bengaluru in the intimation dated 6.3.2020 determined such total income at Rs.22,21,790/- as against the returned income of Rs.14,54,315/- wherein apart from other disallowances, the CPC had disallowed an amount of Rs.2,05,549/- on account of delayed deposit of PF & ESI contribution of employees which is the subject matter of appeal before us.

Before the learned CIT(A)/NFAC, the assessee submitted that although the employee’s contribution towards PF & ESI was deposited beyond the due date as mentioned in the respective accounts, however, these were paid before the due date of filing of the return. However, the NFAC rejected the contention of the assessee by following the CBDT Circular and the amendment brought in by the Finance Act 2021-22.

Aggrieved with such order of the CIT (A)/NFAC the assessee is in appeal before the Tribunal.

The learned .Counsel for the assessee referring to various decisions submitted that the co-ordinate benches of the Tribunal are taking the consistent view that where the employees’ contribution to PF and ESIC are paid before the due date of filing of the return but after the statutory dates prescribed under the respective Act, no disallowance u/s. 36(1)(va) r.w.s. 2(24)(x) can be made. He accordingly submitted that this being a covered Page 2 of 4 matter in favour of the assessee, the order of the CIT(A) be set aside and the addition made by the AO and upheld by the NFAC should be deleted.

The learned DR on the other hand heavily relied on the order of the CIT(A)/NFAC. He submitted that the Finance Act, 2021 has amended the provision of section 43B, as well as section 36(1)(va) by insertion of explanation to those sections. He drew the attention of the bench to the explanatory notes to the Finance Bill, 2021 and submitted that the legislature never intended that section 43B would apply to employees’ contribution. He submitted that the language of explanation 5 to section 43B, explanation 2 to section 36(1)(va) and that of the Memorandum explaining the Finance Act, 2021 make it abundantly clear that employees’ contribution is out of the ambit of section 43B. Relying on various decisions, he submitted that the CIT(A)/NFAC was fully justified in upholding the addition made by the AO on account of delayed payment of PF and ESIC amounting to Rs. 2,05,549/-.

I have heard the rival arguments made by both the sides, perused the orders of the AO and CIT(A)/NFAC and the paper book filed on behalf of the assessee. I have also considered the various decisions cited before us by both sides. I find the AO in the instant case made addition of Rs 2,05,549/- on account of delayed deposit of employees’ contribution to PF and ESIC on the ground that the same were deposited beyond the due date prescribed in the said Act. I find the CIT(A)/NFAC rejected the contention of the assessee that such payments though made after the stipulated dates prescribed in the said Acts, however these payments were made before the due date of filing of the Page 3 of 4 return. He accordingly, upheld the action of the AO. I find the co- ordinate benches of the Tribunal are now consistently taking the view that no disallowances u/s. 36(1)(va) r.w.s. 2(24)(x) can be made on account of delayed payment of PF and ESIC, if such payments are made before the due date of filing of the return. It has further been held in these decisions that the amendment to section 43B as well as section 36(1)(va) r.w.s. 2(24)(x) by the Finance Act, 2021 are prospective and not retrospective in nature. Since the assessee in instant case has admittedly paid the employees’ contribution to PF and ESIC before the due date of filing of the return, therefore, we set aside the order of the CIT(A)/NFAC and direct the AO to delete the addition. The grounds raised by the assessee are accordingly allowed.

In the result, the appeal filed by the assessee is allowed. Order pronounced in the Open Court on 13th July, 2022.