2010 (11) TMI 386 - HC - Income Tax

Addition - Payment of ESI deposited beyond the due date - The issue relating to retrospective operation of the omission of the second proviso to section 43B of the Act was considered by the Supreme Court in CIT v. Alom Extrusions Ltd. 2009 -TMI - 27 - SUPREME COURT wherein it was held that it is curative in nature and would apply retrospectively with effect from April 1 1988 - Hence the Tribunal was right in allowing the claim of the assessee in respect of payments made for ESI contributions and the same could not be disallowed under section 43B of the Act - The question of law is thus answered against the Revenue and in favour of the assessee.

Summary

Issues:
- Appeal against the order of the Income-tax Appellate Tribunal regarding the disallowance of the payment of ESI deposited beyond the due date for the assessment year 1998-99.

Analysis:
1. The appeal was filed by the Revenue against the Tribunal's order, questioning the deletion of an addition made on account of disallowance of ESI payment deposited after the due date. The Commissioner of Income-tax (Appeals) reduced the addition, but both the assessee and the Revenue appealed to the Tribunal. The Tribunal ruled in favor of the assessee, citing the retrospective operation of the amendment to section 43B of the Income-tax Act, 1961 by the Finance Act, 2003. The Revenue challenged this decision.

2. The main issue for determination was whether the amendment made by the Finance Act, 2003, which omitted the second proviso to section 43B effective from April 1, 2004, would apply to earlier cases from April 1, 1988. The legislative history of section 43B was discussed to understand the purpose of disallowing unpaid statutory liabilities and the subsequent amendments made over the years.

3. The Finance Act, 2003 omitted the second proviso to section 43B, leading to the question of its retrospective application. The Supreme Court in a previous case held that such amendments are curative in nature and apply retrospectively from April 1, 1988. Consequently, the Tribunal's decision to allow the claim of the assessee for ESI contributions was deemed correct, and the disallowance under section 43B was not justified.

4. The judgment concluded that the Tribunal's decision in favor of the assessee was appropriate based on the retrospective application of the amendment to section 43B. As a result, the appeal by the Revenue was dismissed, affirming the decision in favor of the assessee for the assessment year 1998-99.