2021 (12) TMI 574 - AT - Income Tax

Deposit of employees contributions qua ESI PF after the due date - non-applicability of the provisions of Section 43B of the Act to the employee s share qua PF ESI and applicability of the amended provisions of Section 36(1)(va) and 43B of the Act wherein Explanations have been inserted by Finance Act, 2021 - HELD THAT - The Hon ble jurisdictional High Court in the case of CIT Vs. M/s Hemla Embroidery Mills (P) Ltd. 2013 (2) TMI 41 - PUNJAB AND HARYANA HIGH COURT and M/s Mark Auto Industries Ltd. 2013 (1) TMI 448 - PUNJAB AND HARYANA HIGH COURT clearly held that the assessee is entitled to claim deduction of employee s share of ESI PF u/s.43B of the Act, if the same has been deposited prior to the filing of return of income u/s.139(1) of the Act. It is clear that the Hon ble Court has not drawn any distinction between the employee s and employer s share qua PF ESI contributions. Admittedly there are no contrary judgements of the jurisdictional High Court against the assessee on the aspect under consideration hence, first determination of the Ld. CIT(A) qua non-applicability of the provisions of Section 43B of the Act to the employee s share qua PF ESI, is unsustainable. Determination to the effect that the amendment made in Section 36(1)(va) and 43B of the Act by Finance Act 2021 has to be considered as clarificatory in nature and having retrospective effects, therefore would be applicable to the previous assessment years as well - We may observe in the case of Value Momentum Software Services Pvt. Ltd. 2021 (5) TMI 989 - ITAT HYDERABAD have taken into consideration the identical issue qua applicability of the amendment to Section 36(1)(va) and Section 43B of the Act, by inserting Explanations by the Finance Act, 2021 and clearly held that the amendment shall be applicable from 1st April, 2021 onwards . It is also relevant to note that the CBDT has also issued Memorandum of Explanation qua applicability of the amended provisions of Section 36(1)(va) 43B of the Act w.e.f. 1st April, 2021, and Assessment Year 2021-21 onwards, hence there is no doubt qua applicability of the amended provisions referred above, prospectively. On the aforesaid discussion, the second aspect as considered/determined by the ld. CIT(A) qua retrospective application of the amended provisions of Section 36(1)(va) and 43B of the Act wherein Explanations have been inserted by Finance Act, 2021 qua employees share in respect of PF ESI Act, is also unsustainable - Decided in favour of assessee.

Summary

Issues Involved:
Appeals against CIT(A) orders for assessment years 2018-2019 & 2019-2020 regarding disallowance of employees' contributions to ESI & PF after due date but before filing return of income u/s.139(1) of the Income Tax Act, 1961.

Analysis:

1. Disallowance of Employees' Contributions:
The issue in the appeals pertains to the disallowance of employees' contributions to ESI & PF after the due date but before filing the return of income. The Assessing Officer (AO) disallowed amounts for both assessment years. The CIT(A) upheld the disallowances made by the AO, leading to the appeals before the ITAT. The main focus was on the applicability of Section 43B of the Act to employees' share of PF & ESI contributions. The CIT(A) considered the amended provisions of Section 36(1)(va) and 43B of the Act, inserted by the Finance Act, 2021, in its determination.

2. Applicability of Section 43B and Amended Provisions:
The CIT(A) upheld the disallowance/addition concerning employees' contributions towards PF & ESI. The CIT(A) discussed the applicability of Section 43B and the amended provisions of Section 36(1)(va) and 43B of the Act. The CIT(A) observed that different High Courts had conflicting views on the issue before the clarificatory amendments made in the Finance Act, 2021. However, the Finance Act, 2021, resolved the controversy.

3. Legal Interpretation and Precedents:
The ITAT analyzed various judgments, including those of the Hon'ble jurisdictional High Court, to determine the applicability of Section 43B to employees' share of PF & ESI contributions. The ITAT referred to the case law of CIT Vs. M/s. Vegetables Products Ltd. and other High Court judgments supporting the assessee's contention. The ITAT highlighted that the jurisdictional High Court rulings did not differentiate between employees' and employers' share of PF & ESI contributions.

4. Retrospective Application of Amended Provisions:
The CIT(A) considered the amendment made by the Finance Act, 2021, to Sections 36(1)(va) and 43B as clarificatory and having retrospective effect. However, the ITAT disagreed with this interpretation. The ITAT cited precedents from other benches and the CBDT's Memorandum of Explanation to establish that the amendment would be applicable prospectively from 1st April 2021.

5. Decision and Outcome:
After thorough analysis, the ITAT held that the disallowances made by the AO and confirmed by the CIT(A) were not sustainable. Therefore, the ITAT allowed both appeals of the assessee, leading to the deletion of the disallowances amounting to ?5,88,203 for A.Y. 2018-2019 and ?60,540 for A.Y. 2019-2020.

This comprehensive analysis of the judgment highlights the legal intricacies involved in the case and the reasoning behind the ITAT's decision to allow the appeals of the assessee.