2021 (10) TMI 1196 - AT - Income Tax

Addition u/s 36(1)(va) - employees' contribution to ESI before the due date for filing of return u/s. 139(1) - HELD THAT - Admittedly, the assessee has remitted the employees' contribution to ESI before the due date for filing of return u/s. 139(1) of the I.T. Act. The Hon'ble jurisdictional High Court in the case of Essae Teraoka (P.) Ltd. 2014 (3) TMI 386 - KARNATAKA HIGH COURT has categorically held that the assessee would be entitled to deduction of employees' contribution to ESI provided the payment was made prior to the due date of filing of return of income u/s. 139(1). Whether the amendment to section 36(1)(va) and 43B of the I.T. Act by Finance Act, 2021 is clarificatory and declaratory in nature? - Supreme Court in the recent judgment in the case of M.M. Aqua Technologies Limited v. CIT 2021 (8) TMI 520 - SUPREME COURT had held that retrospective provision in a taxing Act which is for the removal of doubts cannot be presumed to be retrospective, if it alters or changes the law as it earlier stood - amendment brought about by the Finance Act, 2021 to section 36(1)(va) and 43B of the I.T. Act, alters the position of law adversely to the assessee. Therefore, such amendment cannot be held to be retrospective in nature. Even otherwise, the amendment has been mentioned to be effective from 01.04.2021 and will apply for and from assessment year 2021-2022 onwards. The amendment to section 36(1)(va) and 43B of the I.T. Act by Finance Act, 2021 is only prospective in nature and not retrospective. The amendment by Finance Act, 2021 to Sec. 36(1)(va) and 43B of the I.T. Act will not have application to relevant assessment year, namely A.Y. 2019-2020. Accordingly, we direct the A.O. to grant deduction in respect of employees' contribution to ESI since the assessee has made payment before the due date of filing of the return of income u/s. 139(1) - Decided in favour of assessee.

Issues:
1. Appeal against CIT(A)'s order
2. Disallowance of employees' contribution to ESI
3. Applicability of section 43B and 36(1)(va) of the Income Tax Act
4. Levying of interest u/s. 234B & 234C

Issue 1: Appeal against CIT(A)'s order
The appeal was directed against the CIT(A)'s order dated 02.08.2021 concerning the assessment year 2019-2020. The grounds raised by the appellant challenged the appellate order's validity, citing errors in dismissing the appeal without following binding judicial decisions and confirming adjustments made by CPC under section 143(1)(a).

Issue 2: Disallowance of employees' contribution to ESI
The appellant, a partnership firm, contested the disallowance of employees' contribution to ESI in the return of income. The CIT(A) considered conflicting judicial pronouncements and the amendment to sections 43B and 36(1)(va) of the Income Tax Act by the Finance Act, 2021. The ITAT, after hearing submissions, held that the appellant was entitled to deduction as the contribution was paid before the due date for filing the return u/s. 139(1) of the I.T. Act, in line with the judgment of the jurisdictional High Court.

Issue 3: Applicability of section 43B and 36(1)(va) of the Income Tax Act
The ITAT analyzed whether the amendment by the Finance Act, 2021 to section 36(1)(va) and 43B of the I.T. Act was clarificatory and retrospective. Referring to relevant judgments, including the Hon'ble Supreme Court's decision in M.M. Aqua Technologies Limited v. CIT, the ITAT concluded that the amendment adversely affected the appellant and was not retrospective. The ITAT directed the Assessing Officer to grant deduction for employees' contribution to ESI for the relevant assessment year.

Issue 4: Levying of interest u/s. 234B & 234C
The appellant denied liability to pay interest under sections 234B & 234C of the Act. However, the ITAT's decision did not specifically address this issue in the detailed analysis provided.

In conclusion, the ITAT allowed the appeal filed by the assessee, directing the Assessing Officer to grant deduction for employees' contribution to ESI for the assessment year 2019-2020. The judgment provided a detailed analysis of the legal issues raised, citing relevant judicial precedents and statutory provisions to support its decision.

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