2021 (12) TMI 692 - AT - Income Tax

Delayed Employees share of contribution to Provident Fund (PF) - contribution not paid on or before the due date as mentioned in Sec 36(1)(va) - Scope of amendment to section 36(1)(va) and Sec.43B of the Act, by the Finance Act, 2021 - HELD THAT - 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 under section 36(1)(va) of the Act would also be covered under section 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 under section 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. T 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? - 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. In the decisions referred to by us in the earlier paragraph of this order on identical issue the tribunal has taken a view that the 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. Appeal of assessee allowed.

Summary

Issues:
Appeals against orders of CIT(A) relating to Assessment Years 2018-19, 2019-20 regarding disallowance of employee's share of contribution to Provident Fund (PF) under section 36(1)(va) of the Income Tax Act.

Analysis:
1. Issue of Disallowance of Employee's Share of PF Contribution for AY 2018-19:
The assessee, a firm, filed a return of income for AY 2018-19 declaring income. The Centralized Processing Centre (CPC) assessed the total income by making an addition representing employees' share of PF contribution not paid before the due date. The assessee contended that the contribution was paid before the due date for filing the return u/s.139(1) of the Act, relying on various court decisions. However, the CIT(A) dismissed the appeal, citing amendments made by the Finance Act, 2021 to section 36(1)(va) and 43B. The CIT(A) highlighted the distinction between employee's and employer's contributions under the Act, emphasizing the different treatment for due dates and consequences of non-payment.

2. Amendment to Section 36(1)(va) and 43B by Finance Act, 2021:
The CIT(A) interpreted the amendments introduced by the Finance Act, 2021, which inserted Explanation-2 to section 36(1)(va) and Explanation-5 to section 43B. These explanations clarified that the provisions of section 43B shall not apply for determining the "due date" under section 36(1)(va) and for sums received by the assessee from employees. The CIT(A) held that the amendments were declaratory in nature and applied retrospectively by necessary intendment of deeming nature.

3. Issue of Disallowance of Employee's Share of PF Contribution for AY 2019-20:
In AY 2019-20, a similar dispute arose regarding the employee's share of PF contribution. The CIT(A) made an identical addition to the total income. The assessee appealed before the Tribunal, presenting arguments supported by previous decisions. The Tribunal noted that the amendments by the Finance Act, 2021 were prospective, effective from 1.4.2021, and not applicable retrospectively. Relying on previous tribunal decisions, the Tribunal held that the impugned additions under section 36(1)(va) deserved to be deleted for both assessment years.

4. Conclusion:
The Tribunal allowed both appeals of the assessee, emphasizing that the amendments made by the Finance Act, 2021 were prospective and not applicable with retrospective effect. The decisions of the Tribunal were in line with the view that the impugned additions under section 36(1)(va) should be deleted for both assessment years. The judgment highlighted the legal distinction between employee's and employer's contributions and the impact of the amendments on the due dates and deductions under the Income Tax Act.