2021 (11) TMI 634 - AT - Income Tax

Disallowance u/s 36(1)(va) and 43B - delayed employees contribution paid - scope of amendment to section 36(1)(va) and 43B - HELD THAT - As the employees contribution paid before the due date of filing of the return u/s 139(1) of the I.T.Act is to be allowed as deduction u/s 43B - Therefore, the only issue to be decided in the instant case is whether the amendment to section 36(1)(va) and 43B by the Finance Act, 2021 is prospective or not. Since as categorically held that the amendment is prospective and not retrospective in operation, the learned Standing Counsel s plea does not have any merit. In the instant case, the assessment year being 2018- 2019, the amendment by Finance Act, 2021 to section 36(1)(va) and 43B of the I.T.Act does not have application. Therefore, the A.O. is directed to delete the disallowance of ₹ 3,23,886. - Decided in favour of assessee.

Issues Involved:
1. Legality and correctness of the addition made under Section 36(1)(va) of the Income Tax Act, 1961.
2. Applicability of the amendment to Sections 36(1)(va) and 43B by Finance Act, 2021.
3. Levy of interest under Section 234C of the Income Tax Act, 1961.

Detailed Analysis:

1. Legality and Correctness of the Addition under Section 36(1)(va):
The assessee challenged the addition of ?3,23,886 made by the Assessing Officer (AO) under Section 36(1)(va) of the Income Tax Act, 1961, for late remittance of employees' contribution to Provident Fund (PF) and Employee State Insurance (ESI). The assessee argued that the contributions were paid before the due date for filing the return under Section 139(1) of the Act, thus qualifying for deduction under Section 43B. The CIT(A) upheld the addition, citing judicial pronouncements favoring the Revenue and considering the amendment to Sections 36(1)(va) and 43B by Finance Act, 2021, as retrospective.

2. Applicability of the Amendment to Sections 36(1)(va) and 43B by Finance Act, 2021:
The Tribunal examined whether the amendment to Sections 36(1)(va) and 43B by Finance Act, 2021, is clarificatory and retrospective. The Tribunal referred to the Bangalore Bench's decision in M/s. Shakuntala Agarbathi Company Vs. DCIT, which held that the amendment is not clarificatory and is prospective. The Tribunal noted the Hon'ble Karnataka High Court's decision in Essae Teraoka Pvt. Ltd. Vs. DCIT, which allowed the deduction of employees' contributions paid before the due date for filing the return under Section 139(1). The Tribunal also cited the Hon'ble Supreme Court's judgment in M.M. Aqua Technologies Limited v. CIT, which stated that retrospective provisions in taxing acts cannot be presumed to be retrospective if they alter the law as it stood earlier.

3. Levy of Interest under Section 234C:
The assessee contested the levy of ?13,707 as interest under Section 234C. However, the Tribunal's decision primarily focused on the main issue of the addition under Section 36(1)(va) and did not provide a detailed analysis of the interest levy.

Conclusion:
The Tribunal concluded that the amendment to Sections 36(1)(va) and 43B by Finance Act, 2021, is prospective and not applicable to the assessment year 2018-2019. Consequently, the disallowance of ?3,23,886 was deleted, and the appeal filed by the assessee was allowed. The Tribunal directed the AO to grant the deduction for employees' contributions to ESI and PF, as the payments were made before the due date for filing the return under Section 139(1). The judgment emphasized the prospective nature of the amendment and the applicability of the existing legal framework for the relevant assessment year.

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