Facts of the Case

The assessee, a public sector undertaking engaged in manufacturing pumps and compressors, had collected employees’ contributions toward Provident Fund (PF). Certain amounts were deposited beyond the due dates prescribed under the relevant PF law but before the due date for filing the return of income under Section 139(1).

During reassessment proceedings initiated under Sections 147 and 148 for the relevant assessment years, the Assessing Officer disallowed the delayed payments under Section 36(1)(va), treating them as income under Section 2(24)(x). The CIT(A) granted relief to the assessee. The Revenue filed appeals before the ITAT.

The reassessment also involved examination of other issues including PF trust interest shortfall and prior-period items.

Issues Involved

  1. Whether employees’ PF contributions deposited after statutory due dates but before the return filing due date are allowable.
  2. Applicability of Sections 36(1)(va), 2(24)(x), and 43B.
  3. Whether Finance Act, 2021 amendment applies retrospectively.
  4. Validity of reassessment additions relating to PF matters.

Petitioner’s Arguments (Revenue)

  • Employees’ contributions must be deposited within the due dates prescribed under the PF Act.
  • Delay beyond statutory due date renders the deduction inadmissible under Section 36(1)(va).
  • Relief granted by CIT(A) was incorrect.

Respondent’s Arguments (Assessee)

  • Contributions were deposited before the due date for filing return under Section 139(1).
  • Judicial precedents prevailing at the relevant time permitted such deduction.
  • The Finance Act, 2021 amendment was prospective and not applicable to earlier years.
  • Therefore, disallowance was unwarranted.

 Court Order / Findings (ITAT Allahabad)

  • Courts had consistently allowed deduction where employee contributions were deposited before the return filing due date.
  • The amendment introduced by Finance Act, 2021 clarified stricter treatment but was made effective prospectively from AY 2021-22 onward.
  • For earlier assessment years, the pre-existing legal position applied.

 Important Clarification

  • Pre-Finance Act 2021 law allowed deduction if payment was made before the return due date.
  • Amendments tightening the provision apply prospectively.
  • Each assessment year must be governed by the law in force during that year.
  • Reassessment cannot sustain additions contrary to prevailing judicial interpretation.

Link to download the order –

https://itat.gov.in/public/files/upload/1628750602-ITA%20No.%20147%20and%20148%20of%202016%20Bharat%20Pumps.pdf

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