2022 (5) TMI 190 - AT - Income Tax

Delayed payment of employee contribution of PF and ESI - Deposits before due date of filing of the return of income u/s 139(1) - HELD THAT - As 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 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) of the I.T.Act. It was further held by the ITAT that amendment by Finance Act, 2021, to section 36 1 va and 43B of the Act is not clarificatory. 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. - Decided in favour of assessee.

Issues Involved:

1. Disallowance of employee's contribution towards PF and ESI.
2. Applicability of section 43B of the Income Tax Act.
3. Reliance on jurisdictional High Court precedents.
4. Use of Memorandum explaining provisions in the Finance Bill, 2021.
5. Retrospective effect of amendments proposed by Finance Bill, 2021.

Issue-wise Detailed Analysis:

1. Disallowance of Employee's Contribution towards PF and ESI:
The assessee filed a return of income for the assessment year 2019-2020, declaring a total income of Rs. 15,68,62,280. The Assessing Officer (AO) determined the total income at Rs. 15,82,90,310, disallowing Rs. 14,28,026 due to late remittance of employees' contribution to PF and ESI. The CIT(A) upheld this disallowance, differentiating between employer's and employees' contributions and relying on the judgment of the Hon'ble Apex Court in CIT Vs. Gold Coin Health Food Pvt. Ltd.

2. Applicability of Section 43B of the Income Tax Act:
The assessee argued that payments were made before the due date for filing the return under section 139(1) and thus should be allowable under section 43B. The CIT(A) held that only the employer's contribution is entitled to deduction under section 43B if payments are made before the due date of filing the return. The Tribunal, however, referred to the jurisdictional High Court's judgment in Essae Teraoka Pvt. Ltd. Vs. DCIT, which held that both employer's and employees' contributions are deductible if paid before the due date of filing the return.

3. Reliance on Jurisdictional High Court Precedents:
The assessee relied on the jurisdictional High Court's decision in Essae Teraoka Pvt. Ltd. Vs. DCIT, which supported the deduction of employees' contributions if paid before the due date of filing the return. The CIT(A), however, relied on other High Court precedents. The Tribunal upheld the jurisdictional High Court's decision, emphasizing that the assessee is entitled to the deduction.

4. Use of Memorandum Explaining Provisions in the Finance Bill, 2021:
The CIT(A) used the Memorandum explaining the provisions in the Finance Bill, 2021, to justify the disallowance, considering the amendments clarificatory and retrospective. The Tribunal disagreed, stating that the amendments are not clarificatory and should not be applied retrospectively.

5. Retrospective Effect of Amendments Proposed by Finance Bill, 2021:
The CIT(A) considered the amendments to sections 36(1)(va) and 43B as having retrospective effect. The Tribunal, however, referred to the Supreme Court's judgment 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. The Tribunal concluded that the amendments are prospective, effective from 01.04.2021, and do not apply to the assessment year 2019-2020.

Conclusion:
The Tribunal directed the AO to grant the deduction for employees' contributions to PF and ESI, as the payments were made before the due date of filing the return under section 139(1). The appeal filed by the assessee was allowed, and the disallowance made by the AO was deleted.

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