2022 (1) TMI 141 - AT - Income Tax

Late remittance of employees contribution to PF and ESI u/s 139(1) - contribution paid by the assessee before the due date of filing of return of income u/s 139(1) - HELD THAT - 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 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). As the amended provisions of section 43B as well as 36(1)(va) of the I.T.Act are not applicable for the assessment years under consideration - 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

Summary

Issues involved:
Appeal against CIT(A) orders for assessment years 2018-2019 and 2019-2020 regarding disallowance of late remittance of employees' contribution to PF and ESI under respective Acts.

Analysis:

Issue 1: Disallowance of late remittance of employees' contribution
The assessee filed returns for the assessment years 2018-2019 and 2019-2020, declaring income and was served with intimation under section 143(1) of the Income Tax Act assessing a higher income due to disallowance of employees' contribution to PF and ESI. The CIT(A) held that only the employer's contribution is entitled to deduction under section 43B of the IT Act if paid before the due date of filing the return. The CIT(A) also noted the clarificatory amendment by Finance Act, 2021, with retrospective operation. However, the Tribunal, following a jurisdictional High Court decision, ruled that employees' contribution paid before the due date of filing the return is deductible, and the amendment is not clarificatory but prospective. The disallowance by the Assessing Officer was deleted, allowing the deduction for employees' contribution.

Issue 2: Judicial precedents and retrospective amendment
The Tribunal referred to the decision in the case of Essae Teraoka Pvt. Ltd Vs. DCIT and emphasized that the employees' contribution is deductible if paid before the due date of filing the return. The Tribunal disagreed with the view taken by another High Court and held that the amendment by Finance Act, 2021, altering the law adversely to the assessee, cannot be retrospective. Citing various Tribunal orders, the Tribunal concluded that the amendment is prospective and not applicable to the relevant assessment year, thus directing the AO to grant deduction for employees' contribution paid before the due date of filing the return.

Conclusion:
The Tribunal allowed the appeals filed by the assessee, ruling in favor of deducting employees' contribution to PF and ESI paid before the due date of filing the return for the assessment years under consideration. The disallowance made by the Assessing Officer was deleted, emphasizing the applicability of the employees' contribution deduction based on judicial precedents and the prospective nature of the amendment by Finance Act, 2021.