2021 (12) TMI 1168 - AT - Income Tax

Late remittance of employees' contribution to PF and ESI - Assessee had paid the employees' contribution to PF and ESI prior to the due date of filing of the return u/s.139(1) - HELD THAT - On identical facts, the Bangalore Bench of the Tribunal in the case of M/s. Shakuntala Agarbathi Company 2021 (10) TMI 1196 - ITAT BANGALORE by following the dictum laid down by the Hon'ble jurisdictional High Court in the case of Essae Teraoka Pvt. Ltd. Vs. DCIT 2014 (3) TMI 386 - KARNATAKA HIGH COURT , had held that the assessee would be entitled to deduction of employees' contribution to PF and ESI provided that the payments were made prior to the due date of filing of the return of income u/s. 139(1) of the I.T. Act. It was further held by the ITAT that amendment by Finance Act, 2021, to section 36 1 va and 43B of the Act is not clarificatory. The amended provisions of section 43B as well as 36(1)(va) of the I.T. Act are not applicable for the assessment year under consideration. By following the binding decision of the Hon'ble jurisdictional High Court in the case of Essae Teraoka Pvt. Ltd 2014 (3) TMI 386 - KARNATAKA HIGH COURT the employees' contribution paid by the assessee before the due date of filing of return of income u/s. 139(1) of the I.T. Act is an allowable deduction. Accordingly, we decide this issue in favour of the assessee and the disallowance made by the Assessing Officer is deleted - Appeal filed by the assessee is allowed.

Summary

Issues:
Disallowance of employees' contribution to PF and ESI.

Analysis:
The appeal challenges an order related to the assessment year 2018-2019. The grounds raised contest the disallowance of employees' contribution to PF and ESI. The dispute arises from the difference between the returned income and the income determined under section 143(1) of the Income Tax Act due to the late remittance of employees' contributions. The appellant argues for deduction under section 43B of the Act, citing precedents and the timing of payment. The first appellate authority rejected the appeal, emphasizing the distinction between employer and employee contributions and the retrospective nature of amendments by the Finance Act, 2021.

The Tribunal reviewed the case and referred to a similar decision in favor of the assessee in another matter. It considered the timing of payment crucial, following the precedent set by the jurisdictional High Court. The Tribunal held that the amendment by the Finance Act, 2021, is not clarificatory and cannot be applied retrospectively. It cited various judgments supporting the prospective nature of the amendment and concluded that the amended provisions of the Act do not apply to the relevant assessment year. Consequently, the disallowance made by the Assessing Officer was overturned, allowing the deduction for employees' contributions paid before the due date of filing the return of income under section 139(1) of the Act.

In summary, the Tribunal ruled in favor of the assessee, allowing the appeal and directing the Assessing Officer to grant the deduction for employees' contributions to PF and ESI. The decision was based on the timing of payment and the retrospective applicability of the amendments, as clarified by relevant judicial pronouncements and precedents.