2022 (12) TMI 1206 - AT - Income Tax

Rectification of mistake u/s 154 - Delayed Employees contribution to the Employee Provident Fund and Employee State Insurance Fund - addition u/s 2(24)(x) r/w s. 36(1)(va) - amount being deposited before the due date of filing the return of income u/s. 139 (1) - scope of amendment - HELD THAT - In view of the foregoing, no question of the said Explanations being read as retrospective, so as to apply for the relevant year, sustaining the impugned additions, which therefore fail. This is, however, subject to any decision/s by the Hon'ble jurisdictional High Court, which would, where so, hold, even justifying a rectification u/s. 154/254(2), even where rendered after the date of the order sought to be rectified. See SAURASHTRA KUTCH STOCK EXCHANGE LTD 2008 (9) TMI 11 - SUPREME COURT and SMT. ARUNA LUTHRA. 2001 (8) TMI 84 - PUNJAB AND HARYANA HIGH COURT No such decision has been found, or otherwise pointed out by the parties, as was the case before the Tribunal in Nikhil Mohine 2021 (11) TMI 927 - ITAT JABALPUR any such decision, even if discovered later, may operate to amend this order, or the order giving appeal effect thereto, to bring it in conformity or agreement with the said decision/s, of course, after allowing a fair opportunity of hearing to the assessee. The impugned additions, therefore, could not have been made under the given facts and circumstances of the case, and are directed for deletion. Decided in favour of assessee.

Summary

Issues:
Appeals against Commissioner of Income Tax (Appeals) orders for assessment years 2018-19 & 2019-20 regarding addition of employee's contribution to welfare funds. Interpretation of section 36(1)(va) and retrospective application of Explanations to sections 36(1)(va) and 43B by Finance Act, 2021.

Issue 1: Addition of Employee's Contribution to Welfare Funds
The appeals were filed against the Commissioner of Income Tax (Appeals) orders for assessment years 2018-19 & 2019-20, challenging the addition of the employee's contribution to welfare funds. The main contention was that the contributions were deposited beyond the due date specified under section 36(1)(va) but were deposited before the due date of filing the income tax return under section 139(1) of the Income Tax Act, 1961. The argument was supported by a reference to the audit report under section 44AB. The Tribunal considered the decision in Nikhil Mohine v. Dy. CIT, which clarified that the addition could not be made under section 143(1) due to the debatable nature of the issue. The Tribunal highlighted the absence of a decision by the jurisdictional High Court on the specific issue of employee's contributions to welfare funds. The Tribunal emphasized the need for the employer to deposit the contributions by the due date to avoid inclusion in the employee's total income.

Issue 2: Interpretation of Explanations to Sections 36(1)(va) and 43B
The Tribunal analyzed the Tribunal's decision in Nikhil Mohine, which addressed the addition of employee's contributions to the Provident Fund beyond the due dates specified under section 36(1)(va). The Tribunal discussed the conflicting judicial opinions on the matter and the limited scope of adjustments under section 143(1). It noted that the Explanations inserted by the Finance Act, 2021 aimed to resolve the issue by clarifying that employee's contributions fall under section 43B(b) rather than section 36(1)(va). The Tribunal emphasized the retrospective nature of the Explanations and their application from the inception date, despite being inserted later. It highlighted that the Explanations were clarificatory and retrospective in nature. However, it concluded that the Explanations were proposed as prospective amendments, effective from Assessment Year 2021-22, based on the Notes on the Clauses and the Memorandum explaining the Finance Bill, 2021.

Decision
The Tribunal ruled in favor of the assessees, allowing their appeals. It held that the additions made by the Revenue regarding the employee's contributions to welfare funds were not justified under the given circumstances. The Tribunal emphasized the absence of a decision by the jurisdictional High Court supporting the Revenue's position. It clarified that the Explanations to sections 36(1)(va) and 43B should not be read retrospectively for the relevant years, leading to the deletion of the impugned additions. The Tribunal highlighted the possibility of amending the order if a decision by the jurisdictional High Court emerges later, after providing a fair opportunity of hearing to the assessees.

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