KUMAR PERUMAL,KOLHAPUR vs. DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE -1, KOLHAPUR

The only issue raised in this appeal is against the confirmation of disallowance of Rs.12,34,322/- made by the Assessing Officer (AO) u/s.36(1)(va) of the Act on account of late deposit of the Employees’ share of EPF and ESI etc.

Briefly stated, the facts of the case are that the AO made disallowance of 12,34,322/- in the assessment completed u/s.143(1) of the Act on the ground that the assessee late deposited the employees’ share of EPF and ESI etc. The ld. CIT(A) affirmed the disallowance.

We have heard both the sides and gone through the relevant material on record. It is an admitted position that the assessee did deduct employees’ share of EPF and ESI and paid the same after the due date under the respective legislations but before the time stipulated for filing return u/s 139(1) of the Act for the year under consideration. This fact has been acknowledged in the assessment order. The issue of disallowance in such circumstances is no more res integra in view of several judgments allowing deduction u/s 36(1)(va) of employees’ share of contribution deposited after due date under the respective Acts but before the date prescribed u/s 139 of the Act. The Hon’ble Himachal Pradesh High Court in CIT vs. Nipso Polyfabriks Ltd. (2013) 350 ITR 327 (HP) has held that there exists no difference between employees or employer’s contribution and both are to be allowed as deduction if deposited before the due date.

At this juncture, it is relevant to mention that the Finance Act, 2021 has inserted Explanation 2 below section 36(1)(va) providing that the provisions of section 43B shall not apply for the purpose of determining the due date under this clause w.e.f. 01.04.2021. The effect of this amendment is that if the amount of employees’ contribution towards EPF, ESI, etc is delayed by an employer beyond the due date under the respective Acts, the disallowance will be called for notwithstanding the fact that it was deposited before the due date u/s 139 of the Act. The Memorandum explaining the provisions of the Finance Bill, 2021, provides that this amendment will take effect from 1st April, 2021 and will, accordingly apply in relation to assessment year 2021-2022 and subsequent assessment years. Since the assessment year under consideration is 2019-20, which is anterior to the amendment carried out with effect from A.Y. 2021-22, we hold that the position of law as settled by various Hon’ble High Courts including the one in CIT vs. Nipso Polyfabriks Ltd. (supra) squarely applies to the facts and circumstances of the instant case, thereby not warranting any disallowance since the amount in question was admittedly deposited before due date u/s 139(1) of the Act. The addition is, therefore, directed to be deleted.

In the result, the appeal is allowed.