Deduction of Employees Contribution to ESI and PF: Amendment in Finance Act, 2021 does not applicable to AY 2018-19 and AY 2019-2020, rules ITAT

The Income Tax Appellate Tribunal (ITAT), Bangalore bench has held that the amendment under the Finance Act, 2021 relating to deduction of employees’ contribution to ESI and PF would not be applicable to assessment years 2018-19 and 2019-2020.

For the assessment years under consideration, the returns of income was filed by the assessee, declaring income of Rs.78,13,230 for A.Y. 2018-2019 and Rs.99,83,590 for A.Y. 2019-2020. The assessee was served with intimation u/s 143(1) of the I.T. Act determining total income at Rs.1,71,52,020 for A.Y.2018-2019 and Rs.2,04,16,600 for A.Y. 2019-2020. The reason for the difference between the returned income and the income determined u/s 143(1) of the I.T. Act was on account of disallowance of Rs.93,38,791 (for A.Y.2018-2019) and Rs.1,04,33,007 (for A.Y. 2019-2020) being late remittance of employees’ contribution to PF and ESI under the respective Acts.

The CIT(A) after noticing the difference between the employer’s contribution and employees’ contribution to PF and ESI held that only employer’s contribution to the PF and ESI is entitled to deduction under section 43B of the Income Tax Act, if the payments are made prior to the due date of filing of the return under section 139(1) of the Income Tax Act.

The bench comprising Shri George George K, JM & Shri B.R.Baskaran, AM relied on a catena of decisions and observed that the judgment of the Hon’ble Apex Court relied on by the CIT(A) in the case of CIT v. Gold Coins Health Foods (P.) Ltd. (supra) does not have application to the present case.

Deleting the assessment order, the bench observed that “therefore, 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 Hon’ble jurisdictional High Court in the case of Essae Teraoka Pvt. Ltd Vs. DCIT (supra), the employees’ contribution paid by the assessee before the due date of filing of return of income u/s 139(1) of the I.T.Act is an allowable deduction. Accordingly, we decide this issue in favour of the assessee and the disallowance made by the Assessing Officer is deleted.”

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