2021 (6) TMI 1059 - AT - Income Tax

ESI/PF disallowance - sum paid before the due date of filing sec. 139(1) return and after the due date prescribed in the corresponding statutes - scope of amendments in Sections 36(va) as well as 43B - HELD THAT - As factual backdrop that the legislature has not only incorporated necessary amendments in Sections 36(va) as well as 43B vide Finance Act, 2021 to this effect but also the CBDT has issued Memorandum of Explanation that the same applies w.e.f. 1.4.2021 only. It is further not an issue that the forergoing legislative amendments have proposed employers contributions; disallowances u/s 43B as against employee u/s 36 (va) of the Act; respectively. See M/S MERCHEM LIMITED 2015 (9) TMI 560 - KERALA HIGH COURT , GUJARAT STATE ROAD TRANSPORT CORPORATION 2014 (1) TMI 502 - GUJARAT HIGH COURT ,OUTH INDIA CORPORATION LTD. 1999 (10) TMI 44 - KERALA HIGH COURT , GTN. TEXTILES LTD. 2002 (10) TMI 9 - KERALA HIGH COURT and JAIRAM AND SONS. 2003 (10) TMI 16 - KERALA HIGH COURT However, keeping in mind the fact that the same has been clarified to be applicable only with prospective effect from 1.4.2021, hold that the impugned disallowance is not sustainable - The impugned ESI/PF disallowance is directed to be deleted - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of employees' contribution to PF & ESI.
2. Interpretation of legislative amendments in Sections 36(va) and 43B.
3. Applicability of case laws in ESI/PF disallowance.

Analysis:
1. The assessee appealed against the CIT(A)'s order sustaining the addition on account of employees' contribution to PF & ESI, arguing that the payments were made before the due date of filing the income tax return. The Tribunal noted that the legislature had made amendments in Sections 36(va) and 43B through the Finance Act, 2021, clarifying the treatment of such contributions. The CBDT's Memorandum of Explanation specified that these changes would apply from 1.4.2021 onwards. Despite case laws cited by the Revenue, the Tribunal held that the impugned disallowance was not sustainable due to the prospective application of the legislative amendments, leading to the deletion of the ESI/PF disallowance.

2. The Tribunal considered the amendments in Sections 36(va) and 43B, emphasizing that the changes introduced by the Finance Act, 2021, and the CBDT's clarification applied only from 1.4.2021. The Tribunal highlighted that the amendments differentiated between employers' and employees' contributions, with disallowances under Section 43B for employers and Section 36(va) for employees. Given the prospective nature of these amendments, the Tribunal concluded that the disallowance of ESI/PF contributions made before 1.4.2021 was not justified.

3. In analyzing the case laws cited by the Revenue, including decisions such as CIT vs. Merchem Ltd and CIT vs. Gujarat State Road Transport Corporation, the Tribunal emphasized the importance of the legislative amendments introduced by the Finance Act, 2021. Despite the precedents cited, the Tribunal held that the prospective application of the amendments superseded the arguments based on previous judgments. Consequently, the Tribunal allowed the assessee's appeal and directed the deletion of the ESI/PF disallowance, emphasizing the impact of the legislative changes effective from 1.4.2021.

This detailed analysis of the judgment highlights the Tribunal's interpretation of legislative amendments, the applicability of case laws, and the ultimate decision to delete the ESI/PF disallowance in favor of the assessee.