2022 (3) TMI 876 - AT - Income Tax

Disallowing the PF and ESI payment paid before the due date of filing the return - Scope of amendment - HELD THAT - We are of the view that the amendment brought in the statue i.e., by Finance Act, 2021, the provisions of Section 36(1)(va) r.w.s. 43B of the Act amended by inserting explanation 2 is prospective and not retrospective. Hence, the amended provisions of Section 43B r.w.s. 36(1)(va) of the Act are not applicable for the assessment year under consideration i.e. 2018-19 but will apply from assessment year 2021-22 and subsequent assessment years. Hence, this issue raised in assessee's appeal is allowed.

Summary

Issues Involved:
1. Disallowance of PF and ESI payments made before the due date of filing the return.
2. Legal validity of the order passed by the AO.
3. Prospective vs. retrospective application of the amendment to Section 36(1)(va) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Disallowance of PF and ESI Payments:
The primary grievance of the assessee was the disallowance of ?1,05,036/- made by the Assessing Officer (A.O.) on account of late payments towards EPF and ESI under section 36(1)(va) of the Income Tax Act, 1961. The assessee argued that the payments were made before the due date of filing the return of income under section 139(1) of the Act. The CIT(A) had sustained this disallowance, which led the assessee to appeal.

2. Legal Validity of the Order Passed by the AO:
The assessee contended that the issue was covered by previous decisions of the ITAT Jodhpur Bench in similar cases, where it was held that contributions made before the due date of filing the return of income should not be disallowed. The CIT-DR, representing the revenue, relied on the order of the CIT(A), which explained the provisions of the Act in detail.

3. Prospective vs. Retrospective Application of the Amendment:
The Tribunal noted that the amendment brought by the Finance Act, 2021, which inserted Explanation 5 to Section 36(1)(va), was prospective and not retrospective. This amendment was applicable from the assessment year 2021-22 and not for the assessment year 2018-19 under consideration. The Tribunal referred to several judicial pronouncements, including decisions from the ITAT Jodhpur Bench, ITAT Kolkata, and ITAT Hyderabad, which supported the view that contributions made before the due date of filing the return of income should not be disallowed.

The Tribunal concluded that the facts of the present case were identical to those in the referenced cases and, therefore, following the earlier orders, the disallowances made by the A.O. and sustained by the CIT(A) were deleted. The Tribunal held that the amended provisions of Section 43B read with Section 36(1)(va) were not applicable for the assessment year 2018-19 but would apply from the assessment year 2021-22 onwards.

Conclusion:
The appeal of the assessee was allowed, and the disallowance of ?1,05,036/- on account of late payments towards EPF and ESI was deleted. The Tribunal pronounced the order in the open court on 25/02/2022.