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2021 (12) TMI 815 - AT - Income TaxEmployees' share of contribution to ESI to the extent not paid on or before the due date as mentioned in Sec 36(1)(va) - It was the case of the assessee that employees' share of ESI has been paid before the due date for filing of return u/s. 139(1) - HELD THAT - The Hon'ble Karnataka High Court in the case of Essae Teraoka Pvt. Ltd 2014 (3) TMI 386 - KARNATAKA HIGH COURT has taken the view that employee's contribution under section 36(1)(va) of the Act would also be covered under section 43B of the Act and therefore if the share of the employee's share of contribution is made on or before due date for furnishing the return of income under section 139(1) of the Act, then the assessee would be entitled to claim deduction. Therefore, the issue is covered by the decision of the Hon'ble Karnataka High Court. In this case there is no dispute that the assessee made payment of the Employees share of PF/ESI on or before the due date for filing return of income for AY 2017-18 u/s. 139(1) of the Act. Whether the amendment to the provisions to section 43B and 36(1)(va) of the Act by the Finance Act, 2021, has to be construed as retrospective and applicable for the period prior to 01.04.2021 also ? - On this aspect, we find that the explanatory memorandum to the Finance Act, 2021 proposing amendment in section 36(1)(va) as well as section 43B is applicable only from 01.04.2021. These provisions impose a liability on an assessee and therefore cannot be construed as applicable with retrospective effect unless the legislature specifically says so. In the decisions referred to by us in the earlier paragraph of this order on identical issue the tribunal has taken a view that the aforesaid amendment is applicable only prospectively i.e., from 1.4.2021. We are therefore of the view that the impugned additions made under section 36(1)(va) of the Act, deserves to be deleted. Appeal of assessee allowed.
Issues:
Appeal against order of CIT(A) National Faceless Appeal Centre (NFAC) regarding Assessment Year 2019-20; Dispute over employees' share of contribution to ESI; Interpretation of amendments made by Finance Act, 2021 to section 36(1)(va) and 43B of the Income Tax Act, 1961; Distinction between employee's and employer's contributions; Applicability and retrospective effect of the amendments; Comparison with similar cases; Decision based on Karnataka High Court ruling. Analysis: 1. Dispute over Employees' Share of Contribution to ESI: The assessee, an individual, filed a return of income for AY 2019-20, declaring total income. The Centralized Processing Centre (CPC) added an amount representing employees' share of contribution to ESI not paid before the due date. The assessee contended that the ESI was paid before the due date for filing the return u/s. 139(1) of the Act. Citing Supreme Court and other cases, the assessee argued for the allowance of the contribution. 2. Interpretation of Amendments by Finance Act, 2021: The CIT(A) referred to amendments made by the Finance Act, 2021 to section 36(1)(va) and 43B of the Act. The amendments introduced explanations clarifying the applicability of section 43B and the due date for determining deductions under section 36(1)(va). The CIT(A) highlighted the distinction between employee's and employer's contributions, emphasizing the different treatment for due dates and consequences of non-payment. 3. Applicability and Retrospective Effect of Amendments: The CIT(A) held that the amendments were declaratory/clarificatory in nature and applied retrospectively. However, the tribunal found that the amendments were applicable only from 01.04.2021 based on the explanatory memorandum to the Finance Act, 2021. Referring to similar cases, the tribunal concluded that the additions made under section 36(1)(va) of the Act should be deleted, as the amendments were not retrospective. 4. Comparison with Similar Cases and Karnataka High Court Ruling: The tribunal considered various decisions on the issue, including cases like M/s. Essae Teraoka (P.) Ltd. vs. DCIT and Anand Kumar Jain vs. ITO. The Hon'ble Karnataka High Court's ruling in Essae Teraoka Pvt. Ltd. was cited, stating that if the employee's share of contribution is paid before the due date for filing the return of income, the assessee is entitled to claim deduction. The tribunal found that the issue was covered by the Karnataka High Court's decision. 5. Final Decision and Future Possibilities: The tribunal allowed the appeal of the assessee, emphasizing that the amendments were not retrospective. The Revenue was given the option to seek rectification based on future developments, subject to statutory limitations. The judgment was pronounced in favor of the assessee, highlighting the importance of due dates and distinctions between various contributions under the Act. This detailed analysis of the judgment provides a comprehensive overview of the issues involved, the arguments presented, the legal interpretations made, and the final decision rendered by the tribunal, ensuring a thorough understanding of the case and its implications.
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