2021 (11) TMI 502 - AT - Income Tax

Addition u/s 36(1)(va) - Belated payments of the Employee's share of PF and ESI - Scope of amendment by Finance Act, 2021, to section 36 1 va and 43B - HELD THAT - As decided in M/S SHAKUNTALA AGARBATHI VERSUS THE DY. COMMISSIONER OF INCOME TAX (CPC) , BANGALORE 2021 (10) TMI 1196 - ITAT BANGALORE Admittedly, the assessee has remitted the employees' contribution to ESI before the due date for filing of return u/s. 139(1) of the I.T. Act. The Hon'ble jurisdictional High Court in the case of Essae Teraoka (P.) Ltd. 2014 (3) TMI 386 - KARNATAKA HIGH COURT has categorically held that the assessee would be entitled to deduction of employees' contribution to ESI provided the payment was made prior to the due date of filing of return of income u/s. 139(1). 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? - 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 - 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 is only prospective in nature and not retrospective. The amendment by Finance Act, 2021 to Sec. 36(1)(va) and 43B of the I.T. Act will not have application to relevant assessment year, we direct the A.O. to grant deduction in respect of employees' contribution to 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.

Summary

Issues Involved:
1. Justification of disallowance under Section 36(1)(va) of the Income Tax Act.
2. Retrospective application of amendments made by Finance Act, 2021 to Sections 36(1)(va) and 43B of the Income Tax Act.
3. Applicability of interest under Sections 234A and 234C of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Justification of Disallowance under Section 36(1)(va):
The primary issue was whether the disallowance of ?5,47,631/- under Section 36(1)(va) for belated payments of employees' share of PF and ESI was justified. The assessee contended that the payments were made before the due date for filing the return under Section 139(1) and thus should be allowed as deductions. The assessee relied on the Karnataka High Court's judgment in Essae Teraoka Pvt. Ltd. vs. DCIT, which held that contributions made before the due date for filing returns are deductible. The Tribunal, referencing the same, concluded that the disallowance was not justified as the payments were made before the due date for filing returns.

2. Retrospective Application of Amendments by Finance Act, 2021:
The Tribunal examined whether the amendments to Sections 36(1)(va) and 43B by the Finance Act, 2021, which clarified the due date for contributions, were retrospective. The CIT(A) had held these amendments to be clarificatory and thus retrospective. However, the Tribunal disagreed, citing the Supreme Court's judgment in M.M. Aqua Technologies Ltd. vs. CIT, which stated that retrospective provisions in a taxing Act should not be presumed if they alter the law as it stood. The Tribunal also referenced the Supreme Court's decision in CIT vs. Vatika Township Pvt. Ltd., which emphasized that legislation is presumed to be prospective unless explicitly stated otherwise. The Tribunal concluded that the amendments were prospective, effective from 01.04.2021, and thus not applicable to the assessment year 2018-19.

3. Applicability of Interest under Sections 234A and 234C:
The assessee contested the interest charged under Sections 234A and 234C, arguing that it was not liable under the facts and circumstances of the case. The Tribunal did not provide a detailed discussion on this issue but allowed the appeal filed by the assessee, indicating that the interest charges were also not justified under the given circumstances.

Conclusion:
The Tribunal allowed the appeal, directing the Assessing Officer to grant the deduction for employees' contributions to PF and ESI, as the payments were made before the due date for filing the return. The amendments introduced by the Finance Act, 2021, were held to be prospective and not applicable to the assessment year in question. Consequently, the disallowance and interest charges were overturned, favoring the assessee.