2022 (9) TMI 968 - AT - Income Tax

Delayed Employees contribution to the employees provident fund and the employees state insurance fund - Delay deposit (by the assessee-employer) as beyond the due dates - returned income having been made by the AO u/ss. 143(1) and 154 - HELD THAT - Sec. 43B(b) does not include the employee contribution, and even regarding so is to no avail, rendering the Explanations under reference, even as suggested by their express language, explanatory. An examination of the Notes on Clauses to, and the Memorandum explaining the Provisions of, Finance Bill, 2021, however, resolves the matter beyond the pale of any doubt. While confirming the Explanations under reference to be explanatory of the law, even as signified by the clear, unambiguous language employed therein, are yet stated to be prospective inasmuch as they are applicable assessment year 2021-22 onwards. Lastly, no decision by Hon'ble jurisdictional High Court in the matter has been either cited before me, or found, which, where so, would, irrespective of the view expressed therein, hold for the relevant years, being prior to the year of applicability of the Explanations under reference. No adjustment, in view of the conflicting judicial opinion could, accordingly, be made to the returned income u/s. 143(1)/154, which sections admit only issues on which there could be conceivably no two views, rampant, irrespective of merits thereof, in the instant case, which aspect, as explained therein, has been given cognizance to in making the provision applicable not retrospectively. The assessee, accordingly, succeeds in his challenge to the impugned adjustments, which are held as bad in law and directed for deletion. This is of course subject to any different view taken by the Hon ble jurisdictional High Court for any year prior to AY 2021-22. Assessee appeal allowed.

Summary

Issues:
- Maintainability in law of the adjustment to the returned income in respect of employee's contributions to the employee welfare funds deposited beyond the due date specified under section 36(1)(va).
- Interpretation of the Explanations to sections 36(1)(va) and 43B inserted by Finance Act, 2021, and their retrospective effect.

Issue 1: Maintainability of Adjustment to Returned Income:

The appeal raised concerns regarding the adjustment to the returned income in relation to employee contributions to employee welfare funds deposited after the due date specified under section 36(1)(va). The appellant contested the order under section 154 of the Income Tax Act, 1961 for the Assessment Year 2017-18. The Tribunal referred to the decision in Nikhil Mohine v. Dy. CIT, acknowledging the conflicting judicial opinions on the matter. The Tribunal highlighted the limited scope of an adjustment under section 143(1) and emphasized the necessity of a decision by the jurisdictional High Court to justify such adjustments. The Tribunal noted the absence of such a decision and ultimately directed the deletion of the impugned additions, ruling in favor of the appellant.

Issue 2: Interpretation of Explanations to Sections 36(1)(va) and 43B:

The Tribunal delved into the interpretation of the Explanations to sections 36(1)(va) and 43B inserted by the Finance Act, 2021, to resolve the issue of employee contributions to welfare funds. The Tribunal analyzed the retrospective effect of these Explanations, emphasizing the legislative intent as the determining factor. It discussed the clarity of language in the Explanations and their applicability to different sums under sections 36(1)(va) and 43B. The Tribunal examined the retrospective nature of the Explanations, citing relevant legal precedents to support its stance. It noted that despite the proposed prospective amendments, the Explanations were clarificatory and retrospective in nature. However, it concluded that the Explanations were to take effect only from the Assessment Year 2021-22, based on a plain reading of the relevant documents. The Tribunal ultimately ruled that the Explanations could not be read as retrospective for the relevant year, leading to the deletion of the impugned additions in favor of the appellant.

In summary, the judgment addressed the issues of the maintainability of adjustments to returned income and the interpretation of Explanations to sections 36(1)(va) and 43B. The Tribunal highlighted the necessity of a decision by the jurisdictional High Court to justify such adjustments and analyzed the retrospective effect of the Explanations in resolving the conflicting opinions on employee contributions to welfare funds. The ruling favored the appellant, directing the deletion of the impugned additions based on the absence of a decision by the High Court and the prospective nature of the Explanations for the relevant year.