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2022 (2) TMI 572 - AT - Income TaxEmployees' share of contribution to ESI to the extent not paid on or before the due date as mentioned in Sec 36(1)(va) - HELD THAT - 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 under section 43B of the Act 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 under section 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. 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:
- Interpretation of Section 36(1)(va) and Section 43B of the Income Tax Act. - Applicability of amendments made by the Finance Act, 2021 to employee's share of contribution to ESI and PF. - Distinction between employee's and employer's contributions under the Act. - Retrospective effect of the amendments introduced by the Finance Act, 2021. - Judicial precedents and decisions on similar issues. Analysis: 1. Interpretation of Section 36(1)(va) and Section 43B: The case involved an appeal by the assessee against an order related to the Assessment Year 2019-20 concerning the addition of employees' share of contribution to ESI. The assessee contended that the contribution had been paid before the due date for filing the return and relied on various judicial decisions to support their claim. 2. Applicability of Amendments by Finance Act, 2021: The CIT(A) referred to the amendments made by the Finance Act, 2021, specifically the insertion of Explanation-2 to Section 36(1)(va) and Explanation-5 to Section 43B. These amendments clarified that the provisions of Section 43B shall not apply for determining the "due date" under Section 36(1)(va) and exempted certain sums received by the assessee from employees. The CIT(A) upheld the addition made by the Assessing Officer based on these amendments. 3. Distinction between Employee's and Employer's Contributions: The CIT(A) highlighted the legal distinction between employee's and employer's contributions under the Act. The failure to pay the employee's contribution before the prescribed due date could permanently negate the employer's claim for deduction under Section 36(1)(va), while the delay in the employer's contribution would lead to deferment of deduction under Section 43B. 4. Retrospective Effect of Amendments: The CIT(A) deemed the amendments introduced by the Finance Act, 2021, as declaratory/clarificatory in nature and applicable with retrospective effect. However, the issue of retrospective application was contested, and the Tribunal found that the amendments were only applicable prospectively from 1st April 2021, based on the explanatory memorandum to the Finance Act, 2021. 5. Judicial Precedents and Decisions: The Tribunal considered similar issues in various decisions, including those of M/s. Mahadev Cold Storage, Essae Teraoka Pvt. Ltd., and others. The Hon'ble Karnataka High Court's decision in Essae Teraoka Pvt. Ltd. was cited to support the assessee's claim regarding the employee's contribution under Section 36(1)(va) and Section 43B. 6. Conclusion: The Tribunal allowed the appeal of the assessee, holding that the impugned additions made under Section 36(1)(va) deserved to be deleted, as the amendments introduced by the Finance Act, 2021, were not applicable retrospectively. The decision was pronounced in favor of the assessee, providing relief from the disputed addition related to employees' share of contribution to ESI.
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