ITAT deletes disallowance made on account of employees contribution towards PF & ESI

The Income Tax Appellate Tribunal (ITAT) in Jaipur has deleted a disallowance of Rs.39,81,357 made by the CPC, Bengaluru, concerning employee contributions to PF and ESI. The disallowance was for payments made after the statutory due dates but before the deadline for filing the income tax return. The ITAT ruled that such payments should not be disallowed, referencing consistent High Court judgments.

IN THE INCOME TAX APPELLATE TRIBUNAL,
JAIPUR BENCHES, "A" JAIPUR 

BEFORE: SHRI SANDEEP GOSAIN, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM 

ITA No. 57/JP/2022
Assessment Year: 2019-20

M/s. Shiv Veg Pro Private Limited
SP-3, RIICO Agro Food Park
Ranpur, Kota 325 003 (Raj)
Appellant

Vs.

The CPC
BENGALURU/ACIT
Circle-1, Kota
Respondent

PAN/GIR No.: AAJCS 7629 B

Assessee by : Shri Devang Gargieya, Advocate
Revenue by: Smt. Runi Paul, Addl. CIT 

Date of Hearing : 06/04/2022
Date of Pronouncement: 12 /04/2022 

ORDER

PER: SANDEEP GOSAIN, JM

This appeal by the assessee is directed against the order of the ld. CIT(A) dated 28-12-2021, National Faceless Appeal Centre, Delhi [hereinafter referred to as (NFAC) ] for the assessment year 2019-20.

2. The hearing of the appeal was concluded through video conference by both the parties in view of the prevailing situation of Covid-19 Pandemic.

3. The grounds of appeal raised by the assessee are as under:- 

"1. The impugned disallowance made in the order u/s 143(1) dated 4-06-2020 is bad in law and on facts of the case, for want of jurisdiction and various other reasons and hence the same kindly be deleted.

2. Rs.39,81,357: The ld. CIT(A) erred in law as well as on the facts of the case in confirming the disallowance of expenditure made by AO, on account of employees contribution towards PF/ESI payment of Rs.39,81,357/- by invoking the provisions of Section
36(1)(va) of the Act. The disallowance so made being contrary to the provisions of law and facts of the case. Hence, the same kindly be deleted in full.

4. The Ground No. 1 of the assessee is general in nature which does not require any adjudication.

5.1 The main issue arises in this appeal of the assessee is regarding disallowance of employee’s contribution of PF and ESI deposited belatedly but before due date of filing of return of income U/s 139(1) of the Income Tax Act, 1961 (in short, the Act).

5.2 The assessee filed its return of income on 15.10.2019 which was processed u/s 143(1) of the Act whereby an adjustment was made on account of disallowance of claim of deduction with respect to employees’ contribution towards PF and ESIC deposited belatedly. During the course of assessment proceedings, the CPC, Bangalore confirmed the disallowance of Rs.39,81,357/- on account of late deposit of employees contribution towards PF/ESI. The assessee challenged the said adjustment before the ld. CIT(A)/NFAC and contended that as per the binding  precedents if the payment is made in the government account before due date of filing of return of income U/s 139(1) of the Act then as per provisions of Section 43B of the Act, no disallowance is made. The ld. CIT(A)/NFAC did not accept this contention of the assessee and confirmed the disallowance by considering the amendment in Section 36(1)(va) of the Act whereby an explanation (2) as well as explanation (5) to Section 43B of the Act was inserted being retrospective in nature.

5.3. The Hon'ble Rajasthan High Court as well as other Hon'ble High Courts are consistently holding that where Assessee had paid employees contribution of PF and ESIC, though beyond due date(s) under respective Acts but prior to due date of filing the Return of income under sec. 139(1) of IT Act, the payments cannot be disallowed u/s. 43B. The assessee contended that avoiding the binding nature of judgments, the CPC, Bangalore was not justified in making addition of Rs.39,81,357/- which was paid before due date of filing of Return of Income and in rejecting application.

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