Facts of the Case

The assessee, Commercial Auto Sales Pvt. Ltd., filed its return of income for the relevant assessment year. During processing/assessment, certain employee contributions toward PF/ESI were treated as inadmissible on the ground that they were deposited beyond the due dates prescribed under the respective welfare statutes.

Issues Involved

Whether employee contributions to PF/ESI deposited after the statutory due date under respective Acts but before the due date for filing the income-tax return under Section 139(1) are allowable as deduction.

Whether amendments introduced by the Finance Act, 2021 to Sections 36(1)(va) and 43B operate retrospectively or prospectively.

Petitioner’s (Assessee’s) Arguments

  • The contributions were deposited before the due date of filing the income-tax return.
  • Judicial precedents supported allowability where payment was made before return filing date.
  • The Finance Act, 2021 amendments should apply prospectively and not to earlier assessment years.
  • Therefore, disallowance was unjustified.

Respondent’s (Revenue’s) Arguments

  • Employee contributions must be deposited within the due dates prescribed under the PF/ESI statutes to qualify for deduction.
  • Delay beyond statutory due dates renders the amount inadmissible under Section 36(1)(va).
  • Amendments clarified the legislative intent that such delayed deposits are not allowable.

 Court Findings / ITAT Order

  • Courts had consistently allowed deduction where employee contributions were deposited before the due date of filing the return for years prior to the amendment.
  • The amendments introduced by the Finance Act, 2021 were intended to apply prospectively.
  • For earlier assessment years, the legal position prevailing prior to amendment continues to govern.

Important Clarification by ITAT

For assessment years prior to AY 2021-22, employee PF/ESI contributions deposited before the due date of filing the return may still be eligible for deduction, depending on facts and prevailing judicial interpretation.

Link to download the order -.https://itat.gov.in/public/files/upload/1665481196-ITA%20No.%2024%20Alld%202022%20Commercial%20Auto%20Sales.pdf

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