2021 (12) TMI 558 - AT - Income Tax

Disallowance of deduction claimed on account of Employees contribution to PF ESI by invoking the amended provisions of Section 36(1)(va) r.w.s. 43B - Whether the payment to employees contribution to PF ESI is well within the due date of filing of return of income by the assessee u/s.139(1) ? - HELD THAT - There are series of decisions of various High Courts on this issue and even Hon ble Jurisdictional High Court in the case of M/s. Industrial Security Intelligence India P Ltd. 2015 (7) TMI 1063 - MADRAS HIGH COURT held that the payment of employees contribution in regard to PF ESI if made before the due date of filing of return of income u/s.139(1) of the Act, the same is allowable as deduction as per the provisions of Section 2(24)(x) r.w.s. 36(1)(va) r.w.s. 43B. Scope of amendment - Whether by the Finance Act, 2021, the provisions of Section 36(1)(va) by inserting the Explanation 2 r.w.s. 43B of the Act have been amended, whereby it is clarified that the provisions of Section 43B of the Act shall not apply and shall be deemed ought to have been applied for the purpose of determining the due date under this clause? - As before insertion of Explanation 2 to Section 36(1)(va) of the Act, there is ambiguity regarding due date of payment of employees contribution on account of provident fund and ESI, whether the due date is as per the respective acts or up to the due date of filing of return of income of the assessee. As noted by Hon ble Supreme Court an amendment made to a taxing statute can be said to be intended to remove hardship only of the assessee and not of the Department. Imposing of a retrospective levy on the assessee would be caused undue hardship and for that reason Parliament specifically chose to make the proviso affective from a particular date. In the present case also, the amendment brought out by Finance Act, 2021 w.e.f. 01.04.2021 i.e. for and from assessment year 2021-22 of Explanation-2 to s. 36(1)(va) of the Act and not retrospectively. Thus, from the above, it is clear that the amendment brought in the statute i.e., by Finance Act, 2021, the provisions of Section 36(1)(va) r.w.s. 43B of the Act amended by inserting Explanation 2 is prospective and not retrospective. Hence, the amended provisions of Section 43B r.w.s. 36(1)(va) of the Act are not applicable for the assessment year 2018-19 but will apply from assessment year 2021-22 and subsequent assessment years. Hence, this issue of assessee s appeal is allowed.

Summary

Issues Involved:
1. Disallowance of deduction claimed on account of Employees' contribution to PF & ESI.
2. Applicability of the amended provisions of Section 36(1)(va) read with Section 43B of the Income Tax Act.
3. Retrospective vs. Prospective application of the amendment brought by Finance Act, 2021.

Detailed Analysis:

1. Disallowance of Deduction Claimed on Account of Employees' Contribution to PF & ESI:
The Centralized Processing Centre, Bengaluru, processed the return of income of the assessee for the assessment years 2018-19 and 2019-20, disallowing a sum of ?12,48,25,558/- by invoking provisions of Section 43B read with Section 36(1)(va) of the Income Tax Act. The disallowance was due to the assessee not depositing the employees' contributions to PF & ESI within the time specified under the respective acts. The assessee contended that the payments were made before the due date of filing the return of income and relied on the judgment of the Hon'ble High Court of Madras in the case of M/s. Industrial Security and Intelligence India P Ltd.

2. Applicability of the Amended Provisions of Section 36(1)(va) Read with Section 43B of the Income Tax Act:
The CIT(A) sustained the disallowance by invoking the amended provisions of Section 36(1)(va) read with Section 43B, treating the amendment's applicability as retrospective. The assessee argued that the amendment brought by the Finance Act, 2021, should be construed as prospective, effective from 01.04.2021, and applicable from the assessment year 2021-22. The CIT(A) held that the insertion of Explanation 2 by Finance Act, 2021, clarified that the definition of 'due date' as per Section 43B is deemed to have been applied for the purpose of employees' contribution, thus supporting the disallowance.

3. Retrospective vs. Prospective Application of the Amendment Brought by Finance Act, 2021:
The Tribunal noted that the issue is covered by the decision of the Hon'ble High Court of Madras in the case of M/s. Industrial Security and Intelligence India P Ltd., which held that the payment of employees' contribution to PF & ESI made before the due date of filing the return of income is allowable as a deduction. The Tribunal also referred to various other decisions, including those of the Hyderabad Bench and Delhi Bench of the Tribunal, which held that the amendment brought by Finance Act, 2021, is prospective.

The Tribunal observed that the amendment intended to provide certainty and was explicitly stated to take effect from 01.04.2021, applicable to the assessment year 2021-22 and subsequent years. The Tribunal relied on the Supreme Court's judgment in the case of CIT vs. Vatika Township Pvt. Ltd., which held that unless contrary intention appears, a legislation is presumed not to have retrospective operation. The Tribunal concluded that the amendment brought by Finance Act, 2021, is prospective and not retrospective, and thus, the amended provisions of Section 43B read with Section 36(1)(va) are not applicable for the assessment year 2018-19 but will apply from the assessment year 2021-22.

Conclusion:
The Tribunal allowed the appeals of the assessee, holding that the amendment brought by Finance Act, 2021, is prospective and not applicable for the assessment years 2018-19 and 2019-20. The disallowance made by the Assessing Officer was deleted, and the appeals of the assessee were allowed.