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2021 (10) TMI 952 - AT - Income TaxDisallowance of Employees share of ESI/PF paid belatedly as per the due dates laid down in the law - whether contribution is made on or before due date for furnishing the return of income u/s 139(1) ? - Scope of amendment to the provisions to section 43B and 36(1)(va) of the Act by the Finance Act, 2021 - HELD THAT - The Hon'ble Karnataka High Court in the case of Essae Teraoka Pvt. Ltd 2014 (3) TMI 386 - KARNATAKA HIGH COURT has taken the view that employee's contribution u/s 36(1)(va) of the Act would also be covered u/s 43B of the Act and therefore if the share of the employee's share of contribution is made on or before due date for furnishing the return of income u/s 139(1) of the Act, then the assessee would be entitled to claim deduction. Therefore, the issue is covered by the decision of the Hon'ble Karnataka High Court. Whether the amendment to the provisions to section 43B and 36(1)(va) of the Act by the Finance Act, 2021, has to be construed as retrospective and applicable for the period prior to 01.04.2021 also. On this aspect, we find that the explanatory memorandum to the Finance Act, 2021 proposing amendment in section 36(1)(va) as well as section 43B is applicable only from 01.04.2021. These provisions impose a liability on an assessee and therefore cannot be construed as applicable with retrospective effect unless the legislature specifically says so - aforesaid amendment is applicable only prospectively i.e., from 1.4.2021. We are therefore of the view that the impugned additions made under section 36(1)(va) of the Act in both the Assessment Years deserves to be deleted. - Decided in favour of assessee.
Issues Involved:
1. Disallowance of Employees' Share of ESI/PF Contributions Paid Beyond Due Dates Prescribed in Relevant Laws. 2. Applicability and Retrospective Effect of Amendments to Section 36(1)(va) and Section 43B by the Finance Act, 2021. Detailed Analysis: 1. Disallowance of Employees' Share of ESI/PF Contributions Paid Beyond Due Dates Prescribed in Relevant Laws: The assessee, an individual engaged in the business of manufacturing spares, filed a return of income for the Assessment Year 2019-20, declaring a total income of ?3,19,47,138/-. This return was processed under section 143(1) of the Income Tax Act, 1961, resulting in an assessed income of ?3,37,39,551/-, which included an addition of ?17,92,413/-. This addition pertained to the employees' share of ESI and PF contributions that were deposited beyond the due dates prescribed under the relevant laws but within the due date for filing the return of income under section 139(1) of the Act. The CIT(A) upheld this addition, referencing amendments made by the Finance Act, 2021, to section 36(1)(va) and section 43B. The CIT(A) noted that these amendments clarified that the provisions of section 43B would not apply to employees' contributions to PF and ESI, which must be paid within the due dates specified in the respective Acts to be eligible for deduction. The CIT(A) emphasized the distinction between employees' and employer's contributions, highlighting that failure to meet the due dates for employees' contributions results in permanent disallowance, whereas employer's contributions are allowed upon actual payment. 2. Applicability and Retrospective Effect of Amendments to Section 36(1)(va) and Section 43B by the Finance Act, 2021: The Tribunal examined whether the amendments to section 36(1)(va) and section 43B by the Finance Act, 2021, which inserted Explanations 2 and 5 respectively, were applicable retrospectively. The CIT(A) had considered these amendments as clarificatory and thus applicable with retrospective effect. However, the Tribunal referred to various judicial decisions, including the Karnataka High Court's ruling in Essae Teraoka Pvt. Ltd., which held that employees' contributions paid on or before the due date for filing the return of income under section 139(1) are deductible. The Tribunal noted that the explanatory memorandum to the Finance Act, 2021, indicated that the amendments were applicable from 01.04.2021 onwards. Given that these provisions impose a liability on the assessee, they cannot be construed as having retrospective effect unless explicitly stated by the legislature. The Tribunal found that the amendments were intended to apply prospectively from 01.04.2021, and thus, the disallowance made under section 36(1)(va) for the Assessment Year 2019-20 was not justified. Conclusion: The Tribunal allowed the assessee's appeal, concluding that the disallowance of ?17,92,413/- under section 36(1)(va) was unwarranted as the payments were made before the due date for filing the return of income under section 139(1). The amendments to sections 36(1)(va) and 43B by the Finance Act, 2021, were deemed to apply prospectively from 01.04.2021 and not retrospectively. Pronouncement: The appeal of the assessee was allowed, and the judgment was pronounced in the open court as per the caption page date.
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