Introduction

The case of M/s Kogta Financial (India) Ltd. vs. CPC, Bangalore adjudicated by the Income Tax Appellate Tribunal (ITAT), Jaipur Bench on November 11, 2021, has set a significant precedent in the realm of Income Tax Law concerning the treatment of employee contributions towards Provident Fund (PF) and Employees' State Insurance (ESI). The dispute arose when the Assessing Officer (AO) disallowed a sum of ₹37,62,586/- under Section 36(1)(va) of the Income Tax Act, alleging that the contributions were not paid within the prescribed due dates.

The principal issue revolved around whether the late payment of PF/ESI contributions, albeit before the due date for filing the income tax return, should attract disallowance under the aforementioned section. M/s Kogta Financial contended that their compliance with the payment deadlines for filing returns should safeguard them from such disallowances, referencing prior judicial decisions supporting their stance.

Summary of the Judgment

The ITAT, Jaipur Bench, after thorough examination of the arguments presented by both parties and considering relevant precedents, ruled in favor of M/s Kogta Financial. The Tribunal directed the deletion of the addition amounting to ₹37,62,586/- made under Section 36(1)(va), holding that the contributions were indeed paid before the due date for filing the return of income under Section 139(1) of the Income Tax Act. Furthermore, the Tribunal clarified that amendments introduced by the Finance Act, 2021, pertaining to Sections 36(1)(va) and 43B, were not applicable retrospectively to the assessment year in question (2018-19).

Analysis

Precedents Cited

The Tribunal extensively relied on a series of decisions by the Hon'ble Rajasthan High Court, notably:

• CIT v. Rajasthan State Beverages Corporation Ltd. (2017) 392 ITR 2 SC
• CIT v. State Bank of Bikaner and Jaipur (2014) 43 taxmann.com 411
• Mohangarh Engineers and Construction Company vs DCIT, CPC (ITA No. 405/JODH/2021)
• Shri Gopalkrishna Aswini Kumar v. ACIT (ITA No. 359/Bang/2021)

These cases collectively emphasized that if an assessee deposits employee contributions before the due date for filing the income tax return, even if there was a slight delay post the statutory due date under respective welfare statutes (like PF/ESI Acts), such contributions should not be disallowed under Section 36(1)(va) coupled with Section 43B.

Legal Reasoning

The Tribunal's reasoning hinged on the interpretation of the due dates stipulated under Sections 36(1)(va) and 43B of the Income Tax Act, in conjunction with the amended provisions introduced by the Finance Act, 2021. Crucially, the Tribunal determined that these amendments were not retroactive and hence did not apply to the assessment year 2018-19. The Tribunal also underscored that the primary objective of Section 43B—to curb non-compliance in payment of statutory dues—should not override clear compliance with the due date for filing returns.

Furthermore, the Tribunal highlighted inconsistencies in the Revenue's reliance on High Court decisions from other jurisdictions (Delhi, Madras, Gujarat, and Kerala), asserting that the authoritative jurisprudence from the Rajasthan High Court, which holds jurisdiction over the Assessing Officer in this case, should prevail.

Impact

This judgment has profound implications for taxpayers and the Revenue Department alike. Taxpayers can now argue more confidently that as long as statutory contributions are made before the due date for filing the income tax return, minor delays in payments post the statutory due dates under welfare laws will not attract disallowances. This provides clarity and potentially reduces disputes over such matters.

For the Revenue Department, the decision underscores the necessity to align disallowances strictly with compliance failures within the specific timelines governing tax return filings, rather than conflating them with statutory due dates for contributions.

Complex Concepts Simplified

Conclusion

The Tribunal's decision in M/s Kogta Financial (India) Ltd. vs. CPC, Bangalore reinforces the principle that compliance with the due date for filing income tax returns holds significant weight in determining the allowability of deductions under Sections 36(1)(va) and 43B. By clarifying the non-retroactive applicability of the Finance Act, 2021 amendments to previous assessment years, the judgment provides much-needed clarity and stability in tax law interpretations.

Taxpayers can take solace in the fact that timely filing of returns, coupled with paying statutory dues before the return filing deadline, can safeguard against disallowances related to minor delays in statutory payments. This enhances the predictability of tax liabilities and fosters a more compliant and transparent tax environment.