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2021 (12) TMI 548 - AT - Income TaxDisallowance of late remittance of employees contribution to PF and ESI under the respective Acts - difference between the returned income and the assessed income u/s 143(1) - as contended that assessee has paid the employees contribution prior to the due date of filing of return under section 139(1) - HELD THAT - As decided in M/S SHAKUNTALA AGARBATHI 2021 (10) TMI 1196 - ITAT BANGALORE held that the assessee would be entitled to deduction of employees contribution to PF and ESI provided that the payments were made prior to the due date of filing of the return of income u/s 139(1). The amended provisions of section 43B as well as 36(1)(va) of the I.T.Act are not applicable for the assessment years under consideration. By following the binding decision in the case of Essae Teraoka Pvt. Ltd Vs. DCIT 2014 (3) TMI 386 - KARNATAKA HIGH COURT the em ployees contribution paid by the assessee before the due date of filing of return of income u/s 139(1) of the I.T.Act is an allowable deduction. Accordingly, we decide this issue in favour of the assessee
Issues Involved:
1. Whether the CIT(A) erred in confirming the addition of late remittance of employees' contribution to PF and ESI. 2. Whether Section 43B of the Income Tax Act has an overriding effect on Section 36(1)(va). 3. Whether the amendment to Section 36(1)(va) and Section 43B by Finance Act, 2021, is retrospective. Issue-wise Detailed Analysis: 1. Confirmation of Addition for Late Remittance of Employees' Contribution to PF and ESI: The assessee filed the return of income for the assessment year 2019-2020, declaring an income of ?71,09,807. However, the assessed income was ?73,66,606 due to the disallowance of ?1,29,994 for late remittance of employees' contribution to PF and ESI. The assessee contended before the First Appellate Authority (CIT(A)) that the contributions were paid before the due date for filing the return under Section 139(1) of the Act, and thus, should be allowed as a deduction under Section 43B. The CIT(A) held that only the employer’s contribution is entitled to deduction under Section 43B if paid before the due date of filing the return, and relied on the judgment of the Hon’ble Apex Court in CIT Vs. Gold Coin Health Food Pvt. Ltd. to conclude that the amendment to Section 36(1)(va) and 43B by Finance Act, 2021, is clarificatory and retrospective. 2. Overriding Effect of Section 43B on Section 36(1)(va): The Tribunal noted that the Bangalore Bench of the Tribunal in the case of M/s. Shakuntala Agarbathi Company Vs. DCIT followed the Hon’ble Karnataka High Court’s decision in Essae Teraoka Pvt. Ltd Vs. DCIT, which held that employees' contribution to PF and ESI is deductible if paid before the due date of filing the return under Section 139(1). The Tribunal observed that the amendment by Finance Act, 2021, to Section 36(1)(va) and 43B is not clarificatory and does not have retrospective effect. The Tribunal emphasized the distinction between employer’s and employees’ contributions and upheld the applicability of Section 43B over Section 36(1)(va) for the relevant assessment year. 3. Retrospective Application of Amendment to Section 36(1)(va) and Section 43B: The Tribunal examined whether the amendment to Section 36(1)(va) and Section 43B by Finance Act, 2021, is retrospective. It referred to the Hon’ble Supreme Court’s judgment in M.M. Aqua Technologies Limited v. CIT, which held that a retrospective provision in a taxing Act cannot be presumed to be retrospective if it alters the law as it previously stood. The Tribunal noted that the amendment adversely affects the assessee and cannot be considered retrospective. It cited several Tribunal orders, including Dhabriya Polywood Limited v. ACIT and NCC Limited v. ACIT, which held that the amendment is prospective and applies from the assessment year 2021-2022 onwards. The Tribunal rejected the CIT(A)’s reliance on the Hon’ble Apex Court’s judgment in CIT Vs. Gold Coin Health Food Pvt. Ltd., distinguishing it based on the context of penalty provisions and the concept of income including losses. The Tribunal emphasized the principles of fairness and non-retrospectivity, as upheld by the Hon’ble Supreme Court in CIT Vs. Vatika Township Pvt. Ltd., and concluded that the amendment to Section 36(1)(va) and Section 43B is not retrospective. Conclusion: The Tribunal held that the employees’ contribution paid before the due date of filing the return under Section 139(1) is an allowable deduction for the assessment year 2019-2020. The amendment by Finance Act, 2021, does not apply retrospectively. Consequently, the disallowance made by the Assessing Officer was deleted, and the appeal filed by the assessee was allowed. Order Pronounced: The appeal filed by the assessee is allowed, and the order was pronounced on December 1, 2021.
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