2021 (10) TMI 870 - AT - Income Tax

Delayed contribution of employees' contribution of PF and ESI - amendment brought about to section 36(1)(va) and 43B - assessee has remitted the employees' contribution to PF and ESI before the due date for filing of return u/s. 139(1) - HELD THAT - In view of the judgment of the Hon'ble jurisdictional High Court in the case of Essae Teraoka (P.) Ltd. 2014 (3) TMI 386 - KARNATAKA HIGH COURT the assessee would have been entitled to deduction of employees' contribution of PF and ESI if the payment was made prior to due date of filing of the return of income u/s.139(1) of the I.T. Act. Therefore, the amendment brought about by the Finance Act, 2021 to section 36(1)(va) and 43B of the I.T. Act, alters the position of law adversely to the assessee. Therefore, such amendment cannot be held to be retrospective in nature. Even otherwise, the amendment has been mentioned to be effective from 01.04.2021 and will apply for and from assessment year 2021-2022 onwards. As the amendment by Finance Act, 2021 to Sec. 36(1)(va) and 43B of the I.T. Act will not have application to relevant assessment year, namely A.Y. 2017-2018. Accordingly, I direct the A.O. to grant deduction in respect of employees' contribution to PF and ESI since the assessee has made payment before the due date of filing of the return of income u/s. 139(1) - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of expenditure for Employee Contribution to Specified Funds.
2. Interpretation of legislative amendments in Finance Act 2021 regarding due dates for specified funds contributions.

Issue 1: Disallowance of expenditure for Employee Contribution to Specified Funds:

The appeal concerned the disallowance of expenditure for Employee Contribution to Specified Funds by the Assessing Officer (AO) in the assessment year 2017-2018. The AO disallowed the contributions made to PF and ESI funds beyond the due date specified, relying on CBDT Circular No. 22/2015. The CIT(A) upheld the disallowance, emphasizing that the employer must remit employees' contributions within the due date specified in the Acts to claim deductions. The appellant argued that the contributions were made before the due date of filing the return under section 139(1) of the Income Tax Act and cited relevant case laws. The Tribunal, considering the jurisdictional High Court's judgment, allowed the deduction as the contributions were made before the due date, contrary to the Gujarat High Court's view. The Tribunal held that the Finance Act 2021 amendments to sections 36(1)(va) and 43B were prospective and not applicable to the relevant assessment year.

Issue 2: Interpretation of legislative amendments in Finance Act 2021 regarding due dates for specified funds contributions:

The Tribunal analyzed the Finance Act 2021 amendments to sections 36(1)(va) and 43B, which were deemed clarificatory and declaratory in nature. The Tribunal referred to the Supreme Court's judgment in M.M. Aqua Technologies Limited v. CIT, highlighting that retrospective provisions for removing doubts cannot be presumed retrospective if they alter existing laws. The Tribunal, based on the jurisdictional High Court's ruling, concluded that the amendments adversely affected the assessee's position and were not retrospective. Additionally, the Tribunal cited several orders affirming that the amendments were prospective, effective from April 1, 2021, for assessment year 2021-2022 onwards. Consequently, the Tribunal directed the AO to grant deductions for employees' contributions to PF and ESI for the assessment year 2017-2018, as the payments were made before the due date of filing the return of income under section 139(1) of the Income Tax Act.

In summary, the Tribunal allowed the appeal, holding that the appellant was entitled to deductions for employees' contributions to specified funds as the payments were made before the due date, and the Finance Act 2021 amendments were not applicable to the relevant assessment year.