Bunch of Appeals on the issue of delayed payment of ESI, PF allowed in favour of assessees by the Hon’ble ITAT, Jaipur.

The copy of the order is as under:

PER BENCH:   

The present appeals filed by the captioned assesses are directed  against the respective orders passed by the ld CIT(Appeals), National  Faceless Appeal Centre (NFAC), which in turn arises from the respective  intimations issued by the A.O. u/s 143(1) of the Income Tax Act, 1961 (  for short ‘the Act’). As common issues are involved in the  aforementioned appeals, therefore, the same are being taken up and  disposed off by way of a consolidated order. We shall take up the  appeal No. 313/JP/2021 as the lead matter and the view therein taken  shall apply to the other appeals. The assessee has assailed the  impugned order on the following grounds before us:- 

“1. On the facts and circumstances of the case Ld Lower  Authorities grossly erred in making and confirming disallowance  of Rs. 2,38,852.00 on account of delay payment of ESIC and PF  ignoring this fact that payment has been made on or before the  due date of filing income tax return.  

2. Delay of 19 days is involved in filing of the present appeal. The  assessee appellant explaining the reasons leading to delay in filing of  the present appeal, it is stated that the same had occasioned on  account of technical glitches that were involved in online filing of the  appeal, as a result whereof the appeal was filed manually, and the  same had resulted to a delay of 19 days in filing of the same. 

3. No objection was raised by the ld. D.R as regards the request of  the assessee for condoning the aforesaid delay of 46 days in filing of  the present appeal before us.  

4. In the backdrop of the aforesaid facts, we herein being of the  considered view that the delay in filing of the present appeal had crept  in on account of bonafide reasons, therefore, condone the same.  

5. Briefly the facts of the case are that the assessee filed its return  of income on 24.06.2020 declaring total income of Rs. 2,03,85,557/-  which was processed U/s 143(1) and in terms of intimation dated  19.10.2019 issued by CPC, it made disallowance of Rs. 2,38,852/-  towards employee’s contribution towards ESI and PF. On appeal, the  ld. CIT(A), NFAC has confirmed the disallowance made U/s 143(1) on  account of assessee’s failure to pay the employee’s contribution of  PF/ESI within the prescribed due dates as per Section 36(1)(va) of the  Act. Against the said order, the assessee is in appeal before us.  

6. During the course of hearing, the ld. AR submitted that the  assessee-company deposited employee’s contribution of PF/ESI though  with a delay of few days from the due dates mentioned in the  respective Acts, however the same was deposited well before the due  date of filing of return of income. It was submitted that the said fact is  not under dispute and where such contribution has been deposited  before the due date of filing of the return of income, no disallowance  U/s 36(1)(va) of the Act can be made and in support, reliance was  placed on the Hon’ble Rajasthan High Court decision in case of CIT vs.  Rajasthan State Beverages Corporation Ltd. (2017) 392 ITR 2 and CIT  vs. State Bank of Bikaner and Jaipur (2014) 43 taxmann.com 411. It  was further submitted that the recently Jodhpur Benches of the Tribunal  has also taken a similar view in case of Mohangarh Engineers and  Construction company vs DCIT, CPC (in ITA No. 405/JODH/2021 dated  12.08.2021) and similar view has been taken by the Bangalore Benches  in case of Shri Gopalkrishna Aswini Kumar vs. ACIT (in ITA No.  359/Bang/2021 dated 12.10.2021). It was further submitted that the  explanation added to Section 36(1)(va) of the Act by the Finance Act,  2021 will take effect from 1st April, 2021 and will apply from the  assessment year 2021-22 and subsequent assessment years and not to  the impugned assessment year. It was further submitted that the  adjustment is beyond the scope of Section 143(1) of the Act. It was  accordingly submitted that the adjustment so made by the CPC and  confirmed by the ld. CIT(A) NFAC may be directed to be deleted.

7. Per contra, the ld. DR submitted that as per details furnished in  the tax audit report, the payment of employee’s contribution of PF/ESI  amounting to Rs. 2,38,852/- was not made within the prescribed due  date U/s 36(1)(va) of the Act and since these amount were not  disallowed in the return of income filed by the assessee, the variance  between the tax audit report and ITR has been duly flagged by the CPC  in the computerized processing and disallowance U/s 143(1)(a)(iv) on  the basis of fact furnished by the assessee was made which clearly fails  within ambit of prima facie adjustment to be carried out U/s  143(1)(a)(iv) of the Act. Further, reliance was placed on the  amendment brought in by the Finance Act, 2021 wherein the  explanation to Section 36(1)(va) has been introduced. It was submitted  from the said amendment, it is evident that the law is and has always  very clear i.e. employee’s contribution to specified fund will not be  allowed as deduction U/s 36(1)(va) if there is delay in deposit even by  a single day as per the due dates mentioned in the respective  legislation. It is also clear that the amendments are only  declaratory/clarificatory in nature and are therefore, applicable with  retrospective effect by necessary intendment of deeming nature  expressly stated therein. The ld. DR accordingly submitted that in view  of the unambiguous wording of the now amended provisions of Section  36(1) and 43B, it is clear that the employee’s contribution can be  allowed as a deduction only if it had been paid within the prescribed  due dates under the relevant welfare funds and this position of law is  and has always been the case and the clarification brought about by the  amendment clearly apply retrospectively. It was therefore rightly held  by the ld CIT(A) that the disallowance made U/s 143(1) of the Act by  CPC on account of assessee’s failure to pay the employees’ contribution  of PF/ESI within the prescribed due dates as per Section 36(1)(va) is  strictly in accordance with law and clearly comes under the prima facie  adjustments as envisaged U/s 143(1)(a)(iv) of the Act.

8. We have heard the rival contentions and purused the material  available on record. In case of Mohangarh Engineers and  Construction Company vs DCIT, CPC (Supra), we have extensively  dealt with the identical matter relating to employee’s contribution  towards ESI/PF and our findings therein read as under: 

“13. We have heard the rival contentions and perused the  material available on record. On perusal of the details submitted  by the assessee as part of its return of income, it is noted that  the assessee has deposited the employees’s contribution towards  ESI and PF well before the due date of filing of return of income  u/s 139(1) and the last of such deposits were made on  16.04.2019 whereas due date of filing the return for the  impugned assessment year 2019-20 was 31.10.2019 and the  return of income was also filed on the said date. Admittedly and  undisputedly, the employees’s contribution to ESI and PF which  have been collected by the assessee from its employees have  thus been deposited well before the due date of filing of return of  income u/s 139(1) of the Act.  

14. The issue is no more res integra in light of series of  decisions rendered by the Hon’ble Rajasthan High Court starting  from CIT vs. State Bank of Bikaner & Jaipur (supra) and  subsequent decisions.  

15. In this regard, we may refer to the initial decision of  Hon’ble Rajasthan High Court in case of CIT vs. State Bank of  Bikaner & Jaipur wherein the Hon’ble High Court after extensively  examining the matter and considering the various decisions of the  Hon’ble Supreme Court and various other High Courts has  decided the matter in favour of the assessee. In the said  decision, the Hon’ble High Court was pleased to held as under:  

“20. On perusal of Sec.36(1)(va) and Sec.43(B)(b) and  analyzing the judgments rendered, in our view as well, it is  clear that the legislature brought in the statute Section  43(B)(b) to curb the activities of such tax payers who did  not discharge their statutory liability of payment of dues, as  aforesaid; and rightly so as on the one hand claim was  being made under Section 36 for allowing the deduction of  GPF, CPF, ESI etc. as per the system followed by the  assessees in claiming the deduction i.e. accrual basis and  the same was being allowed, as the liability did exist but  the said amount though claimed as a deduction was not  being deposited even after lapse of several years.  Therefore, to put a check on the said claims/deductions  having been made, the said provision was brought in to  curb the said activities and which was approved by the  Hon’ble Apex Court in the case of Allied Motors (P) Ltd. (supra).  

21. A conjoint reading of the proviso to Section 43-B which  was inserted by the Finance Act, 1987 made effective from  01/04/1988, the words numbered as clause (a), (c), (d),  (e) and (f), are omitted from the above proviso and,  further more second proviso was removed by Finance Act,  2003 therefore, the deduction towards the employer’s  contribution, if paid, prior to due date of filing of return can  be claimed by the assessee. In our view, the explanation  appended to Section 36(1)(va) of the Act further envisage  that the amount actually paid by the assessee on or before  the due date admissible at the time of submitting return of  the income under Section 139 of the Act in respect of the  previous year can be claimed by the assessee for deduction  out of their gross total income. It is also clear that Sec.43B  starts with a notwithstanding clause & would thus override  Sec.36(1) (va) and if read in isolation Sec. 43B would  become obsolete. Accordingly, contention of counsel for  the revenue is not tenable for the reason aforesaid that  deductions out of the gross income for payment of tax at  the time of submission of return under Section 139 is  permissible only if the statutory liability of payment of PF or  other contribution referred to in Clause (b) are paid within  the due date under the respective enactments by the assessees and not under the due date of filing of return.

22. We have already observed that till this provision was  brought in as the due amounts on one pretext or the other  were not being deposited by the assessees though  substantial benefits had been obtained by them in the  shape of the amount having been claimed as a deduction  but the said amounts were not deposited. It is pertinent to  note that the respective Act such as PF etc. also provides  that the amounts can be paid later on subject to payment  of interest and other consequences and to get benefit  under the Income Tax Act, an assessee ought to have actually deposited the entire amount as also to adduce  evidence regarding such deposit on or before the return of  income under sub-section (1) of Section 139 of the IT Act. 

23. Thus, we are of the view that where the PF and/or EPF,  CPF, GPF etc., if paid after the due date under respective  Act but before filing of the return of income under Section  139(1), cannot be disallowed under Section 43B or under  Section 36(1)(va) of the IT Act.”  

16. The said decision has subsequently been followed in CIT  vs. Jaipur Vidyut Vitran Nigam Ltd. (supra), CIT vs. Udaipur  Dugdh Utpadak Sahakari Sangh Ltd. (supra), and CIT vs  Rajasthan State Beverages Corportation Limited (supra). In all  these decisions, it has been consistently held that where the PF  and ESI dues are paid after the due date under the respective  statues but before filing of the return of income under section  139(1), the same cannot be disallowed under section 43B read  with section 36(1)(va) of the Act.  

17. We further note that though the ld. CIT(A) has not  disputed the various decisions of Hon’ble Rajasthan High Court  but has decided to follow the decisions rendered by the Hon’ble  Delhi, Madras, Gujarat and Kerala High Courts. Given the  divergent views taken by the various High Courts and in the  instant case, the fact that the jurisdiction over the Assessing  officer lies with the Hon’ble Rajasthan High Court, in our  considered view, the ld CIT(A) ought to have considered and  followed the decision of the jurisdictional Rajasthan High Court,  as evident from series of decisions referred supra, as the same is  binding on all the appellate authorities as well as the Assessing  officer under its jurisdiction in the State of Rajasthan. 

18. In light of aforesaid discussion and in the entirety of facts  and circumstances of the case, the addition by way of adjustment  while processing the return of income u/s 143(1) amounting to Rs  4,38,530/- so made by the CPC towards the delayed deposit of  the employees’s contribution towards ESI and PF though paid  well before the due date of filing of return of income u/s 139(1)  of the Act is hereby directed to be deleted as the same cannot be  disallowed under section 43B read with section 36(1)(va) of the  Act in view of the binding decisions of the Hon’ble Rajasthan High  Court.”  

9. In the instant case, admittedly and undisputedly, the employees’  contribution to ESI and PF collected by the assessee from its employees  have been deposited well before the due date of filing of return of  income u/s 139(1) of the Act. Further, the ld D/R has referred to the  explanation to section 36(1)(va) and section 43B by the Finance Act,  2021 and has also referred to the rationale of the amendment as  explained by the Memorandum in the Finance Bill, 2021, however, we  find that there are express wordings in the said memorandum which  says “these amendments will take effect from 1st April, 2021 and will  accordingly apply to assessment year 2021-22 and subsequent  assessment years”. In the instant case, the impugned assessment year is assessment year 2019-20 and therefore, the said amended provisions  cannot be applied in the instant case. Similar view has been taken by  the Coordinate Bangalore Benches in case of Shri Gopalkrishna  Aswini Kumar vs. ACIT (supra) wherein it has held as under:- 

“7. The Hon’ble Karnataka High Court in the case of Essae  Teraoka Pvt. Ltd., (supra) has taken the view that employee’s  contribution under section 36(1)(va) of the Act would also be  covered under section 43B of the Act and therefore if the  share of the employee’s share of contribution is made on or  before due date for furnishing the return of income under  section 139(1) of the Act, then the assessee would be  entitled to claim deduction. Therefore, the issue is covered  by the decision of the Hon’ble Karnataka High Court. The  next aspect to be considered is whether the amendment to  the provisions to section 43B and 36(1)(va) of the Act by the  Finance Act, 2021, has to be construed as retrospective and  applicable for the period prior to 01.04.2021 also. On this  aspect, we find that the explanatory memorandum to the  Finance Act, 2021 proposing amendment in section 36(1)(va)  as well as section 43B is applicable only from 01.04.2021.  These provisions impose a liability on an assessee and  therefore cannot be construed as applicable with  retrospective effect unless the legislature specifically says so.  In the decisions referred to by us in the earlier paragraph of  this order on identical issue the tribunal has taken a view  that the aforesaid amendment is applicable only prospectively  i.e., from 1.4.2021. We are therefore of the view that the  impugned additions made under section 36(1)(va) of the Act  in both the Assessment Years deserves to be deleted.”  

10. In light of the aforesaid discussions and in the entirety of facts  and circumstances of the case and following the consistent decisions  taken by the various Benches of the Tribunal, the addition by way of  adjustment while processing the return of income u/s 143(1) amounting  to Rs 2,38,852/- so made by the CPC towards the deposit of the  employees’s contribution towards ESI and PF though paid before the  due date of filing of return of income u/s 139(1) of the Act is hereby  directed to be deleted.

11. Resultantly, the appeal filed by the assessee is allowed in terms  of our aforesaid observations.  

I.T.A No(s). 320, 314, 315, 317, 319, 328/JP/2021 & 02/JP/2022  (Assessment Year: 2018-19 & 2019-20)  

12. As the facts and the issues involved in the captioned appeals  remain the same as were involved in the aforementioned appeal in ITA  No. 313/JP/2021, therefore, our order therein passed shall apply  mutatis mutandis for the purpose of disposal of the captioned appeals.  

13. Resultantly, the aforementioned appeals are allowed in terms of  our observations recorded hereinabove.  

 Order pronounced in the open Court on 20/01/2022.