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2022 (2) TMI 28 - AT - Income TaxDelayed payment of the Employees share of PF/ESI - scope of amendment in section 36(1)(va) as well as section 43B - 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 u/s 43B 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 u/s 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. The next aspect to be considered is 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. - Decided in favour of assessee.
Issues:
1. Disallowance of ESI/PF contribution by the CPC. 2. Interpretation of amendments made to section 36(1)(va) and 43B of the Income Tax Act, 1961 by the Finance Act, 2021. 3. Distinction between employees' and employer's contribution under the Act. 4. Applicability of amendments retrospectively. 5. Judicial decisions on similar issues. 6. Decision regarding the appeal. Issue 1: Disallowance of ESI/PF contribution by the CPC The assessee, a Private Limited Company, filed returns for AY 2018-19 and 2019-20, reporting taxable income. The CPC made additions on account of disallowance of ESI/PF contributions, leading to appeals against the orders of CIT(A) NFAC, Delhi. Issue 2: Interpretation of amendments to section 36(1)(va) and 43B The CIT(A) referred to the amendments made by the Finance Act, 2021, clarifying that provisions of section 43B shall not apply for determining the "due date" under section 36(1)(va). The CIT(A) highlighted the distinction between employees' and employer's contributions, emphasizing the different treatment under the Act. Issue 3: Distinction between employees' and employer's contribution The CIT(A) noted that failure to pay employees' contributions within prescribed due dates negates the employer's claim for deduction permanently under section 36(1)(va). In contrast, delay in employer's contribution payment leads to deferment of deduction under section 43B, recognizing the legal distinction upheld by various judicial pronouncements. Issue 4: Applicability of amendments retrospectively The CIT(A) held that the amendments by the Finance Act, 2021, were declaratory in nature and applicable retrospectively by necessary intendment, upholding the AO's addition. Issue 5: Judicial decisions on similar issues Various decisions, including those of the Karnataka High Court, were cited to support the interpretation of the amendments and the distinction between employees' and employer's contributions. The tribunal's view on the retrospective applicability of the amendments was also considered based on prior cases. Issue 6: Decision regarding the appeal The Hon'ble Karnataka High Court's decision supported the assessee's entitlement to claim deduction if the employee's contribution was made before the due date for filing the return of income. The tribunal found that the amendments were applicable only prospectively from 01.04.2021, leading to the deletion of the impugned additions under section 36(1)(va) of the Act. The appeal of the assessee was allowed, with the possibility of rectification sought by the Revenue. This detailed analysis covers the key issues addressed in the legal judgment delivered by the Appellate Tribunal ITAT BANGALORE, providing a comprehensive overview of the case, interpretations of relevant legal provisions, and the final decision on the appeal.
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