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2022 (2) TMI 475 - AT - Income TaxDisallowing employees contribution to PF ESI, which was paid before the due date of filing of the return of income u/s 139(1) - Scope of amendment 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 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 Involved:
1. Disallowance of employees' contribution to PF and ESI paid before the due date of filing the return of income under section 139(1) of the I.T. Act. Issue-wise Detailed Analysis: 1. Disallowance of Employees' Contribution to PF and ESI: - Background: The appeals concern the disallowance of employees' contributions to PF and ESI for the assessment years 2018-2019 and 2019-2020. The assessee filed returns declaring incomes of ?41,39,850 and ?47,72,460 respectively. The Assessing Officer (AO) determined higher incomes due to the disallowance of late remittance of employees' contributions to PF and ESI. - CIT(A) Decision: The CIT(A) upheld the disallowance, distinguishing between employer’s and employees’ contributions. The CIT(A) relied on the Supreme Court judgment in CIT Vs. Gold Coin Health Food Pvt. Ltd., asserting that the amendments to sections 36(1)(va) and 43B by the Finance Act, 2021, were clarificatory and retrospective. - Assessee's Argument: The assessee contended that the employees' contributions were paid before the due date for filing the return under section 139(1), thus should be deductible under section 43B. The assessee relied on the Karnataka High Court judgment in Essae Teraoka Pvt. Ltd Vs. DCIT, which supported this view. - Tribunal's Analysis: The Tribunal referenced its own decision in M/s. Shakuntala Agarbathi Company Vs. DCIT, which followed the Karnataka High Court's ruling in Essae Teraoka Pvt. Ltd Vs. DCIT. It was held that employees' contributions paid before the due date of filing the return are deductible. The Tribunal also clarified that the amendments by the Finance Act, 2021, to sections 36(1)(va) and 43B are not clarificatory and do not have retrospective application. - Supreme Court and High Court Judgments: The Tribunal distinguished the Supreme Court judgment in CIT Vs. Gold Coin Health Food Pvt. Ltd., which dealt with penalty provisions and not with contributions to PF and ESI. The Tribunal emphasized the Karnataka High Court's interpretation that contributions made before the due date of filing the return are deductible. - Retrospective Application of Amendments: The Tribunal noted that the Finance Act, 2021, explicitly stated that the amendments to sections 36(1)(va) and 43B are effective from 01.04.2021, indicating prospective application. The Tribunal referenced the Supreme Court's decision in CIT Vs. Vatika Township Pvt. Ltd., which held that amendments are presumed not to be retrospective unless explicitly stated. Conclusion: The Tribunal concluded that the amendments to sections 36(1)(va) and 43B by the Finance Act, 2021, are prospective. The employees' contributions to PF and ESI paid before the due date of filing the return under section 139(1) are deductible for the assessment years 2018-2019 and 2019-2020. The appeals filed by the assessee were allowed, and the disallowances made by the AO were deleted.
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