2022 (3) TMI 1535 - AT - Income Tax

Delayed Employees Contribution to Provident Fund/ E.S.I deposited during the Financial Year itself before due date of filing of Return - Disallowances u/s 36(1)(v)(a) r.w.s. 43B - Scope of amendment as inserted in the Act by Finance Act 2021 - HELD THAT - As recently in the matter of Mahadev Cold storage 2021 (6) TMI 506 - ITAT AGRA had the occasion to deal with the issue of disallowance under section 43B of the act and after elaborate examining the law on the subject, it was held that the disallowance under section 43B of the act is not permissible if the assessee had made the contribution before the due date of filing of the return of income. The same principle, continues to hold good for issue under consideration as the assessment years under consideration, are much prior to the year of amendment which was inserted in the Act by Finance Act 2021, which had provided the consequence of not depositing the amount within the time provided by the act resulting into the disallowance of the contribution made by the assessee. Thus AO was not justified in denying, the deduction claimed by the assessee on account of late deposit of PF/ESI/EPF, albeit before filing the return of income - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowances under section 36(1)(va) of the Income Tax Act regarding Employees' Contribution to Provident Fund/ESI.
2. Retrospective applicability of the amendments to section 36 and section 43B by the Finance Act, 2021.

Detailed Analysis:

1. Disallowances under section 36(1)(va) of the Income Tax Act regarding Employees' Contribution to Provident Fund/ESI:

The primary issue involves the disallowance of employees' contributions to Provident Fund (PF) and Employees' State Insurance (ESI) under section 36(1)(va) of the Income Tax Act. The disallowance was based on the contributions being deposited after the due date as prescribed under the respective statutes but before the due date for filing the return of income under section 139(1).

The appellant argued that the CIT(A) wrongly concluded that the amended provision was retrospective and wrongly denied the benefit of section 43B to the assessee. The appellant relied on various decisions, including those from the Delhi Bench and Kolkata Bench, which supported the view that contributions made before the due date of filing the return should not be disallowed.

On the contrary, the respondent (Revenue) argued that the disallowance was justified based on the amendments made by the Finance Act, 2021, which clarified that the provisions of section 43B do not apply to employees' contributions under section 36(1)(va).

2. Retrospective Applicability of the Amendments to Section 36 and Section 43B by the Finance Act, 2021:

The Finance Act, 2021, introduced amendments to section 36 and section 43B, explicitly stating that the provisions of section 43B do not apply to employees' contributions under section 36(1)(va). The amendment included an Explanation 2 to section 36(1)(va) and Explanation 5 to section 43B, clarifying that these provisions are not applicable for determining the due date for employees' contributions.

The appellant contended that these amendments are prospective and should not apply to assessment years prior to AY 2021-22. They cited various tribunal decisions, including the Mahadev Cold Storage case, which held that disallowance under section 43B is not permissible if contributions are made before the due date of filing the return of income.

The respondent, however, argued that the amendments are clarificatory and should be considered retrospective. They supported their argument by referencing the Supreme Court judgment in the case of Commissioner of Income Tax-I, Ahmedabad vs. Gold Coin Health Food Pvt. Ltd., which discussed the retrospective nature of declaratory statutes.

Conclusion:

The tribunal examined the rival contentions and various judicial precedents. It was noted that the amendment brought by the Finance Act, 2021, is prospective and applies from AY 2021-22 onwards. The tribunal relied on the decisions of multiple benches, including Lumino Industries Ltd. and Punjab Bevel Gears Ltd., which held that contributions made before the due date of filing the return of income should not be disallowed for assessment years prior to AY 2021-22.

The tribunal concluded that no disallowance is called for belated payment of employees' contributions to PF and ESI if the contributions are deposited before the due date of filing the income tax return. The appeals filed by the assessee were allowed, and the disallowances made by the CIT(A) were directed to be deleted.