2022 (2) TMI 1272 - AT - Income Tax

Delayed Employees share of PF/ESI - whether the amendment to the provisions to section 43B and 36(1)(va) of the Act by the Finance Act 2021 has to be construed as retrospective and applicable for the period prior to 01.04.2021 also? - HELD THAT - In this case there is no dispute that the assessee made payment of the Employees share of PF/ESI on or before the due date for filing return of income for AY 2017-18 u/s.139(1) of the Act. The explanatory memorandum to the Finance Act 2021 proposing amendment in section 36(1)(va) as well as section 43B is applicable only from 01.04.2021. These provisions impose a liability on an assessee and therefore cannot be construed as applicable with retrospective effect unless the legislature specifically says so. In the decisions referred to by us in the earlier paragraph of this order on identical issue the tribunal has taken a view that the aforesaid amendment is applicable only prospectively i.e. from 1.4.2021. We are therefore of the view that the impugned additions made under section 36(1)(va) of the Act deserves to be deleted. Appeal of assessee allowed.

Summary

Issues:
Appeals against orders related to Assessment Years 2018-19 and 2019-20 regarding employees' share of contribution to ESI, applicability of section 36(1)(va) and section 43B of the Income Tax Act, 1961, and retrospective effect of amendments made by the Finance Act, 2021.

Analysis:
The appeals were filed by the assessee against orders concerning the addition of employees' share of contribution to ESI by the Centralized Processing Centre (CPC) for both Assessment Years. The assessee contended that the employees' share of ESI was paid before the due date for filing the return, making it allowable based on relevant judicial decisions. The CIT(A) referred to the Finance Act, 2021 amendments to section 36(1)(va) and 43B, clarifying that the provisions of section 43B shall not apply for determining the "due date" under clause (va). The CIT(A) highlighted the distinction between employees' and employer's contributions, emphasizing that failure to pay employees' share within the due date negates the employer's deduction permanently, while delay in employer's contribution allows deferment of deduction under section 43B.

The CIT(A) deemed the amendments as clarificatory and applicable retrospectively, upholding the AO's addition. However, the Tribunal cited various decisions addressing similar issues and held that the amendments were prospective from 01.04.2021, leading to the deletion of the additions under section 36(1)(va). The Hon'ble Karnataka High Court's decision supported the assessee's entitlement to claim deduction if the employees' share of contribution was paid before the due date for filing the return.

The Tribunal concluded that the impugned additions deserved to be deleted, allowing the assessee's appeals. The learned DR's submission regarding seeking rectification was accepted, subject to statutory limitations. Consequently, the appeals of the assessee were allowed, with the decision pronounced in open court on the specified date.