2022 (1) TMI 1023 - AT - Income Tax

Delayed employees contribution to PF and ESI - payment made prior to the due date of filing of the return of income u/s 139(1) - HELD THAT - Tribunal in the case of M/s. Shakuntala Agarbathi Company Vs. DCIT ( 2021 (10) TMI 1196 - ITAT BANGALORE ) by following the dictum laid down by the Hon ble jurisdictional High Court in the case of Essae Teraoka Pvt. Ltd Vs. DCIT 2014 (3) TMI 386 - KARNATAKA HIGH COURT 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) of the I.T.Act. It was further held by the ITAT that amendment by Finance Act, 2021, to section 36 1 va and 43B of the Act is not clarificatory. Therefore, 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 - employees 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.

Summary

Issues:
1. Disallowance of employees' contribution to Provident Fund (PF) and Employees' State Insurance (ESI) under section 36(1)(va) of the Income Tax Act, 1961.
2. Applicability of the recent amendment to section 36(1)(va) and 43B of the Act made by Finance Act, 2021.
3. Interpretation of the retrospective or prospective nature of the amendment.
4. Entitlement to deduction of employees' contribution to PF and ESI if payments made before the due date of filing the return u/s 139(1) of the Act.

Detailed Analysis:
1. The appeals were against the CIT(A)'s orders confirming the disallowance of employees' contribution to PF and ESI. The assessee argued that the contributions were made before the due date for filing the return and should be allowed as deductions under section 36(1)(va). The CIT(A) rejected the appeal, citing the 2021 Finance Act's amendment as clarificatory and retrospective.

2. The Tribunal reviewed similar cases and held that the amendment to section 36(1)(va) and 43B by the Finance Act, 2021 was not clarificatory but prospective. Citing the Essae Teraoka case, it emphasized that deductions are permissible if contributions are made before the due date of filing the return. The Tribunal referenced various judgments supporting this interpretation and concluded that the amendment did not apply for the relevant assessment years.

3. The Tribunal highlighted the Supreme Court's stance on retrospective provisions in taxing Acts and concluded that the Finance Act's amendment, altering the law adversely to the assessee, could not be considered retrospective. It noted that the amendment explicitly stated its effective date as April 1, 2021, applying from the assessment year 2021-2022 onwards.

4. Relying on the Essae Teraoka case and other precedents, the Tribunal ruled in favor of the assessee, allowing the deductions for employees' contributions to PF and ESI made before the due date of filing the return. The disallowances made by the Assessing Officer were consequently deleted, and the appeals were allowed.