Disallowance u/s 36(1)(va) for delayed EPF deposit. Amendment by Finance Act is prospective – ITAT

Disallowance u/s 36(1)(va) for delayed EPF deposit. Amendment by Finance Act is prospective – ITAT

ABCAUS Case Law Citation
ABCAUS 3590 (2022) (05) ITAT

Important case law relied referred:
Azamgarh Steel & Power vs. CPC
CIT vs. AIMIL Ltd. [2010] 188 Taxman 265 (Delhi)
Vedvan Consultants Pvt. Ltd. vs DCIT
PCIT vs Pro Interactive Service (India) Pvt. Ltd.

In a recent judgment, ITAT in a judgment clubbing various appeals has given a ruling on disallowance of employee’s contribution of PF/ESI on account of delay in deposits as per the respective Acts.

In the leading case, addition had been made in the intimation issued by CPC, Bangalore u/s 36(1)(va) of the  Income  Tax  Act,  1961 (the Act) for the reason that the contribution received  towards PF/ESIC by the assessee from its employees was not  deposited before the due date. 

The case of the assessee was that though there had been delay in deposit of PF/ESIC Contributions but all the contributions received by the assessee from its employees, have been deposited with the appropriate authorities before the filing of return of income by the assessee. Therefore, since the amounts have been deposited before the filing of return of income, no disallowance is called for.

The Revenue contested and submitted that the amendment brought out by Finance Act 2021 would be applicable to the present case as by the amendment, it has been clarified that provisions of Section 43B of the Act shall not apply and shall be deemed never to have been applied to a sum received by the assessee from any of his employees to which the provisions of sub clause (x) of Clause (24) of Section 2 applies.

The Tribunal stated that the issue is no more res-integra and has already been settled in favour of the assessee by various judicial pronouncements.

The Tribunal gave finding that “notes on clauses” to the Finance Bill 2021 clearly states that the amendment will take effect from 01st April 2021 and will prospectively apply in relation to the assessment year 2021-22 and subsequent assessment year.  The Tribunal held that the amendment brought out by Finance Act, 2021 does not apply to the assessment year under consideration.

Additions on accounts of belated employee’s contribution not permissible under section 154

In another appeal, the AO had made adjustment in respect of disallowance of expenditure towards belated payment of employee’s contribution towards PF & ESI in the proceedings initiated u/s 154 of the Act. 

The Tribunal stated that such disallowance being highly debatable is not susceptible to rectification u/s 154 of the Act at the threshold. Thus, the additions on accounts of belated employee’s contribution is neither permissible under the normal provisions nor under section 154 of the Act.

Accordingly, Tribunal allowed all the appeals in favour of the assessee.

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