2022 (6) TMI 1412 - AT - Income Tax

Belated payment of employees contribution to ESI and PF - assessee deposited the said contribution before due date for filing of return of income under Income Tax Act - Due date of payment - Scope of amendment - HELD THAT - While processing the return u/s 143(1) of the Act no disallowance towards contribution to employees PF and ESI is warranted as this issue is highly debatable in nature. Even otherwise we find that the issue in appeals is squarely covered by the decision of the jurisdictional High Court in the case of CIT Vs. AIMIL Ltd. 2009 (12) TMI 38 - DELHI HIGH COURT Ratio of this decision squarely applies to the facts of the assessee s cases. Also see case of CIT Vs. M/s. Alom Extrusions Limited 2009 (11) TMI 27 - SUPREME COURT Hon ble Supreme Court in the case of M.M. Aqua Technologies Ltd. 2021 (8) TMI 520 - SUPREME COURT held that retrospective provision in a Tax Act which is for the removal of doubts cannot be presumed to be retrospective even where such language is used if it alters or changes the law as it earlier stood. The Amendments made to Section 36 and Section 43B by insertion of Explanations 2 and 5 respectively. In these Sections it is clarified that for the removal of doubts the provisions of these Sections were amended. Tribunals in the cases of Raj Kumar 2022 (2) TMI 1224 - ITAT DELHI held that the amendment brought in by Finance Act, 20 2021 is effective from 1.04.2021 and no disallowance is called for, on belated payment of employees contribution to ESI and PF in case the assessee deposited the said contribution before due date for filing of return of income under Income Tax Act Thus we direct the Assessing Officer / CPC to delete the disallowance of employees contribution to EPF and ESI in all these cases as the contributions were remitted before the due date for filing of return of income. Grounds raised by the assessee are allowed.

Summary

Issues Involved:
1. Disallowance of employees' contribution to ESI and PF under Section 36(1)(va) of the Income Tax Act, 1961.
2. Applicability of the amendments brought by the Finance Act, 2021 to Sections 36(1)(va) and 43B of the Income Tax Act.
3. Retrospective or prospective applicability of the amendments.

Issue-wise Detailed Analysis:

1. Disallowance of Employees' Contribution to ESI and PF:
The main issue in these appeals was the disallowance of employees' contribution to ESI and PF under Section 36(1)(va) of the Income Tax Act, 1961. The Centralized Processing Centre (CPC) Bangalore and the Assessing Officers disallowed these contributions as they were deposited after the due date under the relevant Acts but before the due date for filing the return of income under Section 139(1) of the Act. The CIT (Appeals) upheld these disallowances, relying on various case laws.

2. Applicability of Amendments by Finance Act, 2021:
The Department argued that the amendments brought by the Finance Act, 2021, which inserted Explanation 2 in Section 36(1)(va) and Explanation 5 in Section 43B, are clarificatory in nature and thus have retrospective applicability. The amendments clarified that the provisions of Section 43B do not apply to the determination of the due date under Section 36(1)(va).

3. Retrospective or Prospective Applicability of Amendments:
The counsels for the assessees argued that the amendments are prospective and applicable from Assessment Year 2021-22 onwards. They cited the jurisdictional High Court's decision in CIT Vs. AIMIL Ltd. 321 ITR 508 and the Hon'ble Supreme Court's decision in M.M. Aqua Technologies Ltd. Vs. CIT (Civil Appeal Nos. 4742–4743 of 2021 dated 11.08.2021), which held that retrospective provisions in a Tax Act for the removal of doubts cannot be presumed to be retrospective if they alter or change the law as it earlier stood.

Detailed Judgment Analysis:

1. Disallowance of Employees' Contribution to ESI and PF:
The Tribunal noted that while processing the return under Section 143(1) of the Act, no disallowance towards contribution to employees' PF and ESI is warranted as this issue is highly debatable in nature. The Tribunal observed that the issue is covered by the jurisdictional High Court's decision in CIT Vs. AIMIL Ltd. 321 ITR 508 and the Hon'ble Supreme Court's decision in CIT Vs. M/s. Alom Extrusions Limited (2009) 319 ITR 306 (SC).

2. Applicability of Amendments by Finance Act, 2021:
The Tribunal referred to the Hon'ble Supreme Court's decision in M.M. Aqua Technologies Ltd. Vs. CIT, which held that retrospective provisions in a Tax Act cannot be presumed to be retrospective if they alter or change the law as it earlier stood. The Tribunal also referred to its own decision in a batch of appeals, including Raj Kumar Vs. ITO CPC Bangalore in ITA. No. 1392/Del/2021, where it was held that the amendment brought by Finance Act, 2021 is effective from 1.04.2021 and no disallowance is called for on belated payment of employees' contribution to ESI and PF if the assessee deposited the contribution before the due date for filing of return of income.

3. Retrospective or Prospective Applicability of Amendments:
The Tribunal concluded that the amendments made by the Finance Act, 2021 to Sections 36(1)(va) and 43B are effective from 1.04.2021 and apply to the assessment year 2021-22 and subsequent years. The Tribunal held that no disallowance is called for belated payment of the employees' contribution to ESI and PF if the assessee deposited the same before the due date of filing the Income Tax Return.

Conclusion:
The Tribunal directed the Assessing Officer/CPC to delete the disallowance of employees' contribution to EPF and ESI in all these cases as the contributions were remitted before the due date for filing of return of income. Consequently, all the appeals of the assessees were allowed.

Order Pronounced:
The order was pronounced in the open court on 15-06-2022.