2022 (3) TMI 207 - AT - Income Tax

Late remittance of employees contribution to PF and ESI - As contended that assessee has paid the employees contribution prior to the due date of filing of return u/s 139(1) - HELD THAT - On identical facts, the 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 by the Hon ble jurisdictional High Court in the case of Essae Teraoka Pvt. Ltd Vs. DCIT 2014 (3) TMI 386 - KARNATAKA HIGH COURT had 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). 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. 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. Accordingly, we decide this issue in favour of the assessee.

Issues Involved:
1. Disallowance of Employees' Contribution to PF and ESI remitted beyond the due dates specified in the respective Acts but before the due date for filing the return under Section 139(1) of the Income-tax Act, 1961.
2. Applicability and interpretation of amendments to Section 36(1)(va) and Section 43B introduced by the Finance Act, 2021.
3. Consideration of binding precedents and jurisdictional High Court rulings.
4. Whether the amendments to Section 36(1)(va) and Section 43B are clarificatory and retrospective or prospective in nature.

Detailed Analysis:

1. Disallowance of Employees' Contribution to PF and ESI:
The assessee filed returns of income for the relevant assessment years, which were subsequently increased by the Assessing Officer (AO) due to the disallowance of late remittance of employees' contributions to PF and ESI. The disallowance was based on the contributions being paid beyond the due dates specified in the respective Acts, despite being paid before the due date for filing the return under Section 139(1) of the Income-tax Act, 1961.

2. Applicability and Interpretation of Amendments to Section 36(1)(va) and Section 43B:
The assessee argued that the contributions were paid before the due date for filing the return under Section 139(1) and relied on the Karnataka High Court ruling in Essae Teraoka Pvt. Ltd. v. DCIT, which allowed such deductions. The CIT(A) held that only the employer's contributions paid before the due date for filing the return are deductible under Section 43B, and cited the Supreme Court judgment in CIT v. Gold Coin Health Food Pvt. Ltd. to argue that the amendments to Section 36(1)(va) and Section 43B by the Finance Act, 2021, are clarificatory and retrospective.

3. Consideration of Binding Precedents and Jurisdictional High Court Rulings:
The Tribunal referred to its earlier decision in M/s. Shakuntala Agarbathi Company v. DCIT, which followed the Karnataka High Court's ruling in Essae Teraoka Pvt. Ltd. v. DCIT. The Tribunal reiterated that the employees' contributions paid before the due date for filing the return under Section 139(1) are deductible. The Tribunal also noted that the Karnataka High Court had explicitly disagreed with the Gujarat High Court's contrary ruling in CIT v. Gujarat State Road Transport Corporation.

4. Whether the Amendments to Section 36(1)(va) and Section 43B are Clarificatory and Retrospective or Prospective:
The Tribunal examined whether the amendments introduced by the Finance Act, 2021, were clarificatory and thus retrospective. It referred to the Supreme Court's ruling in M.M. Aqua Technologies Limited v. CIT, which held that retrospective provisions in a taxing Act cannot be presumed to be retrospective if they alter the law adversely to the assessee. The Tribunal concluded that the amendments to Section 36(1)(va) and Section 43B are not clarificatory but substantive, and therefore, they are prospective, effective from April 1, 2021, and applicable from the assessment year 2021-2022 onwards.

Conclusion:
The Tribunal held that the amendments to Section 36(1)(va) and Section 43B by the Finance Act, 2021, are prospective and not applicable to the assessment years in question. Consequently, the employees' contributions paid before the due date for filing the return under Section 139(1) are deductible. The appeals filed by the assessee were allowed, and the disallowances made by the Assessing Officer were deleted.

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