2022 (2) TMI 640 - AT - Income Tax

Disallowing employees' contribution to PF ESI as paid before the due date of filing of the return of income 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 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.

Summary

Issues:
- Disallowance of employees' contribution to PF & ESI before the due date of filing of the return of income u/s. 139(1) of the I.T. Act.

Analysis:
1. The appeals concerned the disallowance of employees' contribution to PF & ESI before the due date of filing of the return of income u/s. 139(1) of the I.T. Act for assessment years 2018-2019 and 2019-2020.
2. The assessee contended that the employees' contribution to PF and ESI was paid before the due date, thus eligible for deduction under section 43B of the I.T. Act, citing the judgment in Essae Teraoka Pvt. Ltd. Vs. DCIT.
3. However, the CIT(A) disallowed the deduction, stating only the employer's contribution is eligible under section 43B, and the amendment by Finance Act, 2021, is clarificatory and retrospective.
4. The Tribunal, following Essae Teraoka Pvt. Ltd. case, held that the assessee is entitled to deduction for employees' contribution to PF and ESI if paid before the due date of filing the return of income, rejecting the retrospective application of the amendment by Finance Act, 2021.
5. The Tribunal emphasized that the amendment is prospective, not retrospective, based on judicial precedents, and directed the Assessing Officer to grant the deduction for employees' contribution to ESI for the relevant assessment year, i.e., A.Y. 2019-2020.
6. Consequently, the Tribunal allowed the appeals, ruling in favor of the assessee and deleting the disallowance made by the Assessing Officer.

This comprehensive analysis of the judgment highlights the key issues, arguments, legal interpretations, and the final decision rendered by the Tribunal regarding the disallowance of employees' contribution to PF & ESI before the due date of filing the return of income.