2016 (8) TMI 100 - HC - Income Tax

Disallowance of employer s and employee s contributions of PF and ESI - amount paid within the due date of filing return of income under Section 43B and Section 2(24)(x) read with Section 36 (1) (va) of the Act? - Held that- Where the assessee was entitled to make payment under the Provident Fund Act within grace period and that if within that grace period, the contribution has been deposited by the assessee, it cannot be said that assessee has not deposited the amount within due dates, as prescribed under the Provident Fund Act and consequently, the assessee was entitled to get deduction of the amount contributed. See The Commissioner of Income Tax Versus Amoli Organics (P) Ltd. 2013 (11) TMI 971 - GUJARAT HIGH COURT . Hence, the order passed by the Tribunal dated 02.01.2007 and by the Assessing Officer dated 24.02.2006 are quashed and set aside. The matter is remitted to the Assessing Officer for consideration of the first question afresh in light of the aforementioned judgment of this Court. Whether, the omission of second proviso to Section 43B by Finance Act, 2003 being curative in nature has retrospective effect or not? - Held that - The issue s also settled by the judgment of this Court rendered in CIT v. Cadila Pharmaceuticals Ltd., 2013 (12) TMI 1591 - GUJARAT HIGH COURT wherein, it has been held that in view of retrospective amendment in first proviso to section 43B, the Tribunal was justified in deleting disallowance in respect of unpaid PF / ESI amount, which remained unpaid even during grace period available. Thus, the second issue is answered in favour of the assessee

Summary

Issues:
1. Disallowance of employer's and employee's contributions of PF and ESI under Section 43B and Section 2(24)(x) read with Section 36(1)(va) of the Income Tax Act.
2. Retrospective effect of the omission of second proviso to Section 43B by Finance Act, 2003.

Analysis:

Issue 1: Disallowance of Contributions
The appeals arose from a common order by the Income Tax Appellate Tribunal regarding the disallowance of employer's and employee's contributions of PF and ESI. The Tribunal had confirmed the disallowance, leading to the substantial question of law on whether this action was correct. The assessee, engaged in manpower supply, had filed returns but was later reopened under section 147 due to non-payment of contributions before the due date. The CIT(A) partly allowed the appeals, but the Tribunal restored the Assessing Officer's order. The High Court referred to a previous judgment where it was held that if contributions were made within the grace period, they should be considered as deposited within due dates. The Court found no distinguishing feature to warrant a different view and quashed the Tribunal's order, remitting the matter to the Assessing Officer for reconsideration based on the previous judgment.

Issue 2: Retrospective Effect of Omission
The second issue pertained to the retrospective effect of the omission of the second proviso to Section 43B by the Finance Act, 2003. Referring to a previous judgment, the Court held that due to a retrospective amendment in the first proviso to section 43B, the Tribunal was justified in deleting disallowances related to unpaid PF/ESI amounts, even during the grace period. Therefore, this issue was resolved in favor of the assessee and against the Revenue. Consequently, the appeals were disposed of with no order as to costs.

In conclusion, the High Court's judgment addressed the disallowance of contributions and the retrospective effect of statutory amendments, providing clarity on the interpretation and application of relevant provisions under the Income Tax Act.