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2022 (5) TMI 595 - AT - Income TaxDisallowance of employee s contribution of PF and ESI deposited belatedly but before due date of filing of return of income u/s 139(1) - Scope of amendment - HELD THAT - There is no dispute that prior to the amendment brought by the Finance Bill, 2021 in Section 36(1)(va) as well as Section 43B of the Act, the issue of allowability of employees contribution towards PF and ESI and depositing the same in the government account before the due date of filing of return of income U/s 139(1) of the Act was settled and decided in favour of the assessee by various binding precedents of Hon ble High Courts including the Jurisdictional High Court. The limited controversy is whether the amendment brought to Section 36(1)(va) as well as 43B of the Act is applicable retrospective or from assessment year 2021-22 as it is specifically stated in the memorandum of Finance Bill, 2021 was decided in favour of the assessee by holding that amendment in Section 36(1)(va) as well as Section 43B of the Act by way of inserting the explanation vide Finance Bill, 2021 are applicable only from A.Y. 2021-22 and subsequent assessment years and therefore, the said amendment is not applicable to the assessment year under consideration. - Decided in favour of assessee.
Issues Involved:
1. Disallowance of Provident Fund (PF) and Employees State Insurance (ESI) payments deposited before the due date of filing the return of income. 2. Applicability of amendments to Section 36(1)(va) and Section 43B of the Income Tax Act, 1961, introduced by the Finance Act, 2021. Issue-wise Detailed Analysis: 1. Disallowance of PF and ESI Payments: The primary issue raised by the assessee was the disallowance of employee contributions towards PF and ESI, which were deposited belatedly but before the due date of filing the return of income under Section 139(1) of the Income Tax Act, 1961. The assessee argued that as per binding precedents, no disallowance should be made if the payment is made to the government account before the due date of filing the return of income. The CIT(A)/NFAC, however, confirmed the disallowance, relying on amendments to Section 36(1)(va) and Section 43B, which were considered retrospective in nature. 2. Applicability of Amendments to Section 36(1)(va) and Section 43B: The Tribunal examined whether the amendments to Section 36(1)(va) and Section 43B, introduced by the Finance Act, 2021, apply retrospectively or prospectively. The amendments clarified that Section 43B does not apply to employee contributions, and these amendments were intended to take effect from April 1, 2021, and apply to assessment year 2021-22 and subsequent years. The Tribunal noted that prior to these amendments, various High Courts, including the Jurisdictional High Court, consistently held that employee contributions paid before the due date of filing the return of income under Section 139(1) could not be disallowed. The Tribunal referred to several decisions, including those of the Hon'ble Rajasthan High Court and other High Courts, which supported the assessee's position. These decisions emphasized that if the employer deposits employee contributions towards PF and ESI before the due date of filing the return of income, the payments cannot be disallowed under Section 43B or Section 36(1)(va). Tribunal's Conclusion: The Tribunal concluded that the amendments introduced by the Finance Act, 2021, are applicable only from assessment year 2021-22 and subsequent years. Therefore, for the assessment year 2018-19, the amendments do not apply. The Tribunal followed the binding precedents of the Jurisdictional High Court and other High Courts, which held that employee contributions deposited before the due date of filing the return of income cannot be disallowed. Final Judgment: The Tribunal allowed the appeal of the assessee, directing the deletion of the disallowance of Rs. 11,52,115/- made on account of employee contributions towards PF and ESI deposited before the due date of filing the return of income under Section 139(1). The order was pronounced in the open court on March 29, 2022.
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