2022 (2) TMI 767 - AT - Income Tax

Disallowance on delayed remittances of employees contribution towards PF/ESI - Scope of amended provisions of section 43B r.w.s. 36(1)(va) - HELD THAT - As relying on Adyar Ananda Bhavan Sweets India P. Ltd. v. ACIT (supra), we hold that the amended provisions of section 43B r.w.s. 36(1)(va) of the Act are not applicable for the assessment year 2019-20, but will apply from the assessment year 2021-22 and subsequent assessment years. Accordingly, we direct the Assessing Officer to allow the claim of deduction as claimed by the assessee. Thus, the grounds raised by the assessee are allowed.

Summary

Issues Involved:
1. Disallowance of delayed remittance of employees' contribution towards PF/ESI under section 36(1)(va) of the Income Tax Act, 1961.
2. Applicability of the amendment brought by the Finance Act, 2021 to section 36(1)(va) and section 43B of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Disallowance of Delayed Remittance of Employees' Contribution Towards PF/ESI:

The assessee filed its return of income for the assessment year 2019-20, declaring a total income of ?39,17,200/-. The Centralized Processing Centre (CPC), Bengaluru, completed the assessment under section 143(1) of the Income Tax Act, 1961, by making an addition of ?7,14,733/- to the income returned under section 36(1)(va) due to alleged delayed remittances of employees' contribution towards PF/ESI. The Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), New Delhi, confirmed the disallowance, observing that the assessee, liable to audit under section 44AB and covered by labor law provisions, must credit the relevant funds on or before the due dates. If the payment is not made by the due dates prescribed under the explanation to section 36(1)(va), the amount is liable to be disallowed. The CIT(A)-NFAC also relied on the decision of the Hon’ble Kerala High Court in the case of CIT v. Apollo Tyres Ltd.

2. Applicability of the Amendment by the Finance Act, 2021:

The assessee contended that the issue is covered in favor of the assessee by the recent decision of the Coordinate Benches of the Tribunal in the case of Adyar Ananda Bhavan Sweets India P. Ltd. v. ACIT, where it was held that the payment of employees' contribution to PF & ESI made before the due date of filing the return of income under section 139(1) is allowable as a deduction. The Tribunal noted that the amendment brought by the Finance Act, 2021, to section 36(1)(va) and section 43B, which clarified that the provisions of section 43B do not apply to employees' contributions, is prospective and applies from the assessment year 2021-22 onwards.

The Tribunal observed that various High Courts, including the Hon’ble High Court of Madras and the Hon’ble Delhi High Court, have held that if the employees' contribution is deposited before the due date of filing the return of income, no disallowance could be made under section 43B. The Tribunal also referred to the Hon’ble Supreme Court's decision in CIT v. Vatika Township Pvt. Ltd., which held that unless contrary intention appears, legislation is presumed not to have retrospective operation.

The Tribunal concluded that the amendment by the Finance Act, 2021, is prospective and not retrospective. Therefore, the provisions of section 36(1)(va) r.w.s. 43B, as amended, are not applicable for the assessment year 2019-20 but will apply from the assessment year 2021-22 onwards. Consequently, the Tribunal directed the Assessing Officer to allow the claim of deduction as claimed by the assessee.

Conclusion:

The Tribunal allowed the appeal filed by the assessee, holding that the amended provisions of section 43B r.w.s. 36(1)(va) of the Act are not applicable for the assessment year 2019-20 and will apply from the assessment year 2021-22 onwards. The Assessing Officer was directed to allow the claim of deduction for the delayed remittance of employees' contribution towards PF/ESI as claimed by the assessee.