Facts of the Case

The assessee, a cooperative labour contract society, filed its return of income for Assessment Year 2018-19. Employees’ contributions towards EPF/ESI were deposited after the due dates prescribed under the respective welfare statutes but before the due date for filing the income-tax return under Section 139(1).

During processing under Section 143(1), the Central Processing Centre disallowed the amount of ₹13,13,323 on the ground that employees’ contributions were deposited belatedly. The disallowance was confirmed by the CIT(A).

The assessee appealed before the Income Tax Appellate Tribunal.

The dispute concerned “disallowance of Employees’ Contribution to EPF/ESI deposited belatedly however claimed to have been paid before the due date of return”

Issues Involved

Whether employees’ contribution to PF/ESI deposited after the due date under the respective Acts but before the due date for filing return under Section 139(1) is allowable as deduction for AY 2018-19.

Petitioner’s (Assessee’s) Arguments

  • The contributions were deposited within the financial year and before filing the return.
  • Adjustment under Section 143(1) on a debatable legal issue was improper.
  • Judicial precedents of the Supreme Court and various High Courts allowed deduction where payment is made before the return-filing due date.
  • Amendments made by Finance Act 2021 to Sections 36(1)(va) and 43B are prospective and applicable only from AY 2021-22 onwards.
  • Jurisdictional High Court decisions should prevail over contrary non-jurisdictional rulings.

Respondent’s (Revenue’s) Arguments

  • Employees’ contribution is deemed income under Section 2(24)(x) and deductible under Section 36(1)(va) only if deposited within the statutory due date under the relevant welfare law.
  • Employees’ contribution and employer’s contribution operate under different legal frameworks.
  • Section 43B relief applies primarily to employer’s contribution, not employees’ contribution.
  • No evidence was produced showing exact dates of deposit.
  • Therefore, disallowance under Section 36(1)(va) was justified.

Court Order / Findings (ITAT)

  • Prior to Finance Act 2021, judicial precedents — particularly of the jurisdictional High Court — allowed deduction where employees’ contributions were deposited before the due date of filing the return.
  • The amendments introduced by Finance Act 2021 clarifying the distinction between Sections 36(1)(va) and 43B are prospective in nature.
  • For AY 2018-19, the earlier legal position applies.
  • Consequently, the disallowance was not sustainable.

Important Clarification

  • Finance Act 2021 amendments to Sections 36(1)(va) and 43B apply prospectively (from AY 2021-22 onward).
  • For earlier assessment years, payments made before the return filing due date remain allowable, subject to applicable jurisdictional precedents.
  • Employees’ contribution and employer’s contribution remain conceptually distinct, but earlier case law allowed parity for deduction timing.

Link to download the order -  https://itat.gov.in/public/files/upload/1648013929-udwasi%20Berojgar%20Shamiti.pdf

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