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2021 (10) TMI 843 - AT - Income TaxDisallowance u/s. 36(i)(va) - employees contribution to PF belatedly - contribution paid beyond the due date prescribed under the ESI Act but before the due date prescribed u/s. 139(1) - Scope of amendment of section 43B - HELD THAT - Whether the amendment to section 36(1)(va) and 43B of the I.T.Act by Finance Act, 2021 is clarificatory and declaratory in nature. The Hon ble Supreme Court in the recent judgment in the case of M.M.Aqua Technologies Limited v. CIT 2021 (8) TMI 520 - SUPREME COURT had held that retrospective provision in a taxing Act which is for the removal of doubts cannot be presumed to be retrospective, if it alters or changes the law as it earlier stood (page 597). In this case, in view of the judgment of the Hon ble jurisdictional High Court in the case of Essae Teraoka (P.) Ltd. 2014 (3) TMI 386 - KARNATAKA HIGH COURT the assessee would have been entitled to deduction of employees contribution of PF and ESI if the payment was made prior to due date of filing of the return of income u/s 139(1) - the amendment brought about by the Finance Act, 2021 to section 36(1)(va) and 43B of the I.T.Act, alters the position of law adversely to the assessee. Therefore, such amendment cannot be held to be retrospective in nature. Even otherwise, the amendment has been mentioned to be effective from 01.04.2021 and will apply for and from assessment year 2021-2022 onwards. The amendment to section 36(1)(va) and 43B of the I.T.Act by Finance Act, 2021 will not have application for the relevant assessment year, namely A.Y. 2019-2020. Accordingly, we direct the A.O. to grant deduction in respect of employees contribution to PF and ESI since the assessee has made payment before the due date of filing of the return of income u/s 139(1). - Decided in favour of assessee.
Issues:
- Disallowance of employees' contribution to PF and ESI under section 36(1)(va) of the Income Tax Act - Retrospective nature of the amendment to section 36(1)(va) and 43B by Finance Act, 2021 Issue 1: Disallowance of employees' contribution to PF and ESI under section 36(1)(va) of the Income Tax Act: The appeal was against the CIT(A)'s order upholding the disallowance of employees' contribution to PF and ESI amounting to ?1,22,245 under section 36(1)(va) of the Income Tax Act. The assessee contended that the payments were made before the due date for filing the return u/s 139(1) of the Act, citing judicial pronouncements. However, the CIT(A) affirmed the disallowance, considering the amendment by Finance Act, 2021 as retrospective. The CIT(A) held that the amendments clarified that any delay in depositing employees' contributions would not be allowed as a deduction. The assessee further appealed to the Tribunal, arguing that the amendment was clarificatory and retrospective. Issue 2: Retrospective nature of the amendment to section 36(1)(va) and 43B by Finance Act, 2021: The Tribunal analyzed whether the amendment to section 36(1)(va) and 43B by Finance Act, 2021 was clarificatory and retrospective. The Tribunal considered previous orders and judicial decisions to determine the nature of the amendment. It was highlighted that the Hon'ble jurisdictional High Court's judgment emphasized that deductions for employees' contributions to PF and ESI were permissible if paid before the due date for filing the return of income u/s 139(1) of the Act. The Tribunal concluded that the amendment was not retrospective as it altered the law adversely to the assessee and was effective from 01.04.2021 onwards. Relying on various Tribunal orders, the Tribunal held that the amendment was only prospective and directed the Assessing Officer to grant the deduction for employees' contributions to PF and ESI for the relevant assessment year, A.Y. 2019-2020. In conclusion, the Tribunal allowed the appeal, emphasizing that the amendment to section 36(1)(va) and 43B by Finance Act, 2021 was prospective and did not apply to the relevant assessment year. The decision was based on the principle that deductions for employees' contributions to PF and ESI were permissible if paid before the due date for filing the return of income u/s 139(1) of the Act, as established by judicial pronouncements and the nature of the amendment itself.
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