2022 (1) TMI 417 - AT - Income Tax

Belated remittance of Employee's provident fund and ESI Contribution - assessee did not remit the employees' contribution to PF and ESI within the due date specified under the respective Acts -Scope of amendment - HELD THAT - We hold that the amendment to section 36(1)(va) and 43B of the Act will not have application for the relevant assessment year, namely assessment year 2018-2019. Accordingly, we direct the A.O. to grant deduction in respect of employees' contribution to PF and ESI since the assessee made the payment before the due date of filing of return u/s 139(1) on 30.11.2018 of the Act. Accordingly, grounds raised by assessee stands allowed.

Summary

Issues:
1. Disallowance of claim for belated remittance of Employee's provident fund and ESI Contribution.
2. Interpretation of the retrospective or prospective effect of the explanation to section 36 by Finance Act, 2021.

Issue 1: Disallowance of claim for belated remittance of Employee's provident fund and ESI Contribution:

The assessee's appeal was against the NFAC's order for the assessment year 2018-19, disallowing a claim for belated remittance of Employee's provident fund and ESI Contribution. The assessee contended that the deduction should be allowed under the first proviso of section 43B if the payment is made on or before the due date for filing the return of income. The CIT(A) dismissed the appeal, citing the need for remittance within the due date as per the respective Acts and the amendment to section 36(1)(va) by Finance Act, 2021. The Tribunal, considering similar cases, held that the amendment is prospective and not retrospective. Citing relevant case laws and the Supreme Court's judgment, the Tribunal directed the AO to grant the deduction since the payment was made before the due date of filing the return.

Issue 2: Interpretation of the retrospective or prospective effect of the explanation to section 36 by Finance Act, 2021:

The Tribunal, in line with judicial pronouncements and case laws, concluded that the amendment to section 36(1)(va) and 43B by Finance Act, 2021, does not apply to the relevant assessment year 2018-2019. The Tribunal directed the AO to grant the deduction for the employees' contribution to PF and ESI since the payment was made before the due date of filing the return. The decision was based on the understanding that the amendment alters the law adversely to the assessee and is effective from 01.04.2021, applying for assessment year 2021-2022 onwards. The Tribunal's order allowed the appeal filed by the assessee, emphasizing the prospective nature of the amendment and the entitlement to the deduction based on timely payment.

In conclusion, the Tribunal's judgment favored the assessee by allowing the deduction for the belated remittance of Employee's provident fund and ESI Contribution for the assessment year 2018-19. The decision was based on the prospective nature of the amendment to section 36(1)(va) and 43B by Finance Act, 2021, and the timely payment made by the assessee before the due date of filing the return.