Income Tax Appellate Tribunal

Methods (India) Private Limited vs. Deputy Commissioner Of Income Tax

MANU/IL/0051/2022

01.02.2022

Direct Taxation

Employees' contribution paid by assessee before the due date of filing of return of income under Section 139(1) of the IT Act is an allowable deduction

In facts of present case, for the assessment year 2018-2019, the return of income was filed declaring loss of Rs.6,06,66,516. The assessee was served with an intimation under Section 143(1) of the I.T. Act by assessing loss of Rs.5,87,31,110. The reason for the difference between the returned loss and the assessed loss under Section 143(1) of the Income Tax Act, 1961 (I.T. Act) was on account of disallowance of sum of Rs.19,35,406 being late remittance of employees' contribution to PF and ESI under the respective Acts.

Aggrieved by the intimation under Section 143(1) of the I.T. Act, the assessee preferred an appeal before the first appellate authority. It was stated that, the assessee had paid the employees' contribution to PF and ESI prior to the due date of filing of the return under Section 139(1) of the I.T. Act. Therefore, it was submitted that, the assessee is entitled to deduction of employees' contribution to PF and ESI having regard to the provisions of Section 43B of the I.T. Act. The CIT(A), however, rejected the appeal of the assessee.

The CIT(A) noticed the difference between employer and employee contribution to PF and ESI and held that, only employers contribution to PF and ESI is entitled to deduction under Section 43B of the I.T. Act, if the same is paid prior to due date of filing of return of income under Section 139(1) of the Act. It was further held that the amendment to Section 36(1)(va) and 43B of the I.T. Act by Finance Act, 2021 is clarificatory and has got retrospective operation. Aggrieved, assessee has filed this appeal before the Tribunal.

On identical facts, the Bangalore Bench of the Tribunal in the case of Shakuntala Agarbathi Company Vs. DCIT by following the dictum laid down by the High Court in the case of Essae Teraoka Pvt. Ltd Vs. DCIT¸ had held that, the assessee would be entitled to deduction of employees' contribution to PF and ESI provided that the payments were made prior to the due date of filing of the return of income under Section 139(1) of the I.T. Act. It was further held that the amendment to Section 36(1)(va) and 43B of the I.T. Act by Finance Act, 2021 is clarificatory and has got retrospective operation.

The amended provisions of Section 43B as well as 36(1)(va) of the I.T. Act are not applicable for the assessment years under consideration. By following the binding decision of the High Court in the case of Essae Teraoka Pvt. Ltd Vs. DCIT, the employees' contribution paid by the assessee before the due date of filing of return of income under Section 139(1) of the I.T. Act is an allowable deduction. Accordingly, the disallowance made by the Assessing Officer is deleted. The appeal filed by the assessee is allowed.

Tags : Assessment Deduction Allowability

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