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2022 (2) TMI 339 - AT - Income TaxLate remittance of employees' contribution to PF and ESI - As stated that the assessee had paid the employees' contribution to PF and ESI prior to the due date of filing of the return u/s. 139(1) - scope of amendment by Finance Act, 2021, to section 36 1 va and 43B - HELD THAT - As in 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 in the case of Essae Teraoka Pvt. Ltd Vs. DCIT (supra) 2014 (3) TMI 386 - KARNATAKA HIGH COURT 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) - Also further held by the ITAT that amendment by Finance Act, 2021, to section 36 1 va and 43B of the Act is not clarificatory. Therefore, 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. By following the binding decision of the Hon ble jurisdictional High Court in the case of Essae Teraoka Pvt. Ltd Vs. DCIT (supra), 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 - Decided in favour of assessee.
Issues:
1. Disallowance of employees' contribution to PF and ESI. 2. Interpretation of amendments to section 36(1)(va) and 43B of the Income Tax Act by Finance Act, 2021. Issue 1: Disallowance of employees' contribution to PF and ESI: The appellant contested the disallowance of ?19,35,406 made under section 36(1)(va) of the Income Tax Act in the intimation under section 143(1) of the Act. The contention was that the belated payments of the Employee's share of PF and ESI were allowable deductions as they were paid before the due date for filing the return of income under section 139(1) of the Act. The CIT(A) upheld the disallowance, stating that only the employer's contribution is entitled to deduction under section 43B if paid before the due date of filing the return. The appellant relied on the judgment of the Hon'ble Karnataka High Court in Essae Teraoka Limited case. The Tribunal, following the same judgment, held that the employees' contribution to PF and ESI is deductible if paid before the due date of filing the return of income under section 139(1) of the Act. The Tribunal also noted that the Finance Act, 2021 amendments to section 36(1)(va) and 43B were not clarificatory and had no retrospective operation. Therefore, the disallowance was deleted, and the appellant's appeal was allowed. Issue 2: Interpretation of amendments to section 36(1)(va) and 43B by Finance Act, 2021: The Tribunal analyzed whether the amendments introduced by the Finance Act, 2021 to section 36(1)(va) and 43B of the Income Tax Act were clarificatory and retrospective. Citing the judgment of the Hon'ble jurisdictional High Court in Essae Teraoka case, it was established that the employees' contribution to ESI was deductible if paid before the due date of filing the return of income under section 139(1) of the Act. The Tribunal held that the Finance Act, 2021 amendments altered the law adversely to the assessee and were not retrospective. The Tribunal referred to various orders that supported the prospective nature of these amendments. Consequently, the Tribunal concluded that the amendments did not apply to the relevant assessment year, and directed the Assessing Officer to grant deduction for employees' contribution to ESI paid before the due date of filing the return. As a result, the appeal was allowed in favor of the assessee. In summary, the Appellate Tribunal ITAT Bangalore ruled in favor of the assessee, allowing the appeal and directing the Assessing Officer to grant deductions for employees' contribution to PF and ESI paid before the due date of filing the return of income under section 139(1) of the Income Tax Act. The Tribunal also clarified that the amendments introduced by the Finance Act, 2021 were not retrospective and did not apply to the relevant assessment year.
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