Facts of the Case

The assessee company filed its return declaring income of ₹6.98 crore. The return was processed under Section 143(1), wherein the CPC made an adjustment of ₹11,20,461 by disallowing employees’ contribution to PF/ESI on the ground that the amounts were deposited beyond the due date prescribed under the respective welfare statutes.

The assessee contended that although the payments were delayed under PF/ESI laws, they were deposited before the due date for filing the return under Section 139(1). The CIT(A) dismissed the appeal, relying on amendments made by the Finance Act, 2021 to Sections 36(1)(va) and 43B.

 Issues Involved

  1. Whether employees’ PF/ESI contributions deposited after statutory due date but before return filing due date are allowable as deduction.
  2. Whether the Finance Act, 2021 amendments apply retrospectively.
  3. Whether such adjustment could be made while processing return under Section 143(1).

Petitioner’s (Assessee’s) Arguments

  • The contributions were deposited before the due date of filing the return under Section 139(1).
  • Judicial precedents had consistently allowed such deduction prior to Finance Act 2021.
  • Amendments introduced by Finance Act 2021 are prospective and applicable from AY 2021-22 onwards.
  • The Tribunal had already decided the same issue in assessee’s own case for the preceding year in its favour.

Respondent’s (Revenue’s) Arguments

  • Employees’ contributions must be deposited within the due date prescribed under PF/ESI statutes to qualify for deduction.
  • Section 43B applies only to employer’s contribution, not employees’ share.
  • Finance Act 2021 amendments clarified the legislative intent and should be treated as retrospective.
  • CPC adjustment under Section 143(1) was valid based on tax audit report disclosures.

Court Order / Findings (ITAT)

  • Prior to Finance Act 2021, there existed divergent judicial views, with many High Courts allowing deduction if payment was made before the return filing due date.
  • The Tribunal had already decided the identical issue in the assessee’s own case for the immediately preceding year in favour of the assessee.
  • Principles of consistency warranted following the earlier decision.
  • Amendments made by Finance Act 2021 were prospective in nature.

Important Clarification

  • For assessment years prior to AY 2021-22, employees’ PF/ESI contributions paid before the return filing due date may be allowable based on prevailing judicial precedents.
  • Finance Act 2021 amendments introducing stricter provisions apply prospectively.
  • Consistency in decisions for successive years is an important judicial principle. 

Link to download the order - https://itat.gov.in/public/files/upload/1642660741-15ALLD%20PDF.pdf

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