2022 (2) TMI 76 - AT - Income Tax

Disallowance of the employee s contribution to the Employee Provident Fund and Employee State Insurance Fund on account of its delayed deposit with the prescribed authority u/s. 36(1)(va) - HELD THAT - The view expressed by the Tribunal is in fact in agreement with that projected by the Board per its Circular (No. 22/2015 dtd. 17/12/2015) as also that canvassed per the impugned order with reference to the cited decisions both explaining as did the Explanatory Notes on the insertion of s. 36(1)(va) on the statute the object of the said provision. It is this view which in fact as also noticed by the Tribunal represented the uniform view across all the Hon ble Courts prior to the deletion of the second proviso to s. 43B by Finance Act 2003 w.e.f. 01/4/2004 which the Explanations to ss. 36(1)(va) and 43B by Finance Act 2021 seek to statutorily clarify in view of the conflict of judicial opinion passing thus the test of retrospectivity even as unequivocally expressed per the unambiguous language thereof. The Explanations under reference were therefore clarificatory and thus retrospective. The said Explanations the Tribunal continued had however been as clear from a reference to the Notes on the Clauses to and the Memorandum explaining the Provisions of the Finance Bill 2021 reproducing the same proposed as prospective amendments. The amendments by way of Explanation 5 to s. 43B and Explanation 2 to s. 36(1)(va) it concluded are to therefore take effect only from AY 2021-22 and which view is unmistakable on a plain reading of the said documents. The impugned order is completely silent on and there is no reference therein either to the said Explanations or if the same are retrospective concerning itself only with the merits of the impugned additions impermissible u/s. 143(1) in view of the conflict of judicial opinion and the absence of any decision by the Hon ble jurisdictional High Court; none being brought to my notice by the parties or otherwise found. No counter in this regard was also raised by Sh. Halder before me. There is in view of the foregoing no question of the said Explanations being read as retrospective so as to apply for the relevant year sustaining the impugned additions which therefore fail. This is however subject to any decision/s by the Hon ble jurisdictional High Court which would where so hold even justifying a rectification u/s. 154/254(2) even where rendered after the date of the order sought to be rectified (Asst. CIT v. Saurashtra Kutch Stock Exchange Ltd. 2008 (9) TMI 11 - SUPREME COURT ; CIT v. Aruna Luthra 2001 (8) TMI 84 - PUNJAB AND HARYANA HIGH COURT No such decision has been found or otherwise pointed out by the parties as was the case before the Tribunal in Nikhil Mohine 2021 (11) TMI 927 - ITAT JABALPUR Any such decision even if discovered later may operate to amend this order or the order giving appeal effect thereto to bring it in conformity or agreement with the said decision/s of course after allowing a fair opportunity of hearing to the assessee. - Decided in favour of assessee.

Summary

Issues:
Appeal against the Order by the Commissioner of Income Tax regarding disallowance of employee contributions to EPF and ESI Fund under section 36(1)(va) of the Income Tax Act, 1961.

Analysis:

Issue 1: Delay in filing the Appeal
The appeal was delayed by 126 days, attributed to technical glitches at the Department's portal. The assessee submitted a condonation petition supported by documents and an affidavit. The Tribunal, considering the reasonable explanation and supporting material, condoned the delay.

Issue 2: Disallowance of Employee Contributions
The primary issue in the appeal was the disallowance of employee contributions to EPF and ESI Fund under section 36(1)(va). The Appellant argued that the contributions were deposited within the due date of filing the return. The First Appellate Authority confirmed the disallowance, citing High Court decisions. However, the Tribunal, relying on its decision in Nikhil Mohine case, held that the disallowance could not be made under section 143(1) due to a cleavage of judicial opinion. The Tribunal emphasized the need for a decision by the jurisdictional High Court to make such adjustments.

Issue 3: Interpretation of Legal Provisions
The Tribunal analyzed the applicability of section 36(1)(va) and section 43B(b) concerning employee contributions. It highlighted the retrospective effect of Explanations inserted by the Finance Act, 2021, clarifying the treatment of employee contributions. The Tribunal concluded that the Explanations were clarificatory and retrospective, impacting the deductions for the relevant year.

Decision:
The impugned order failed to consider the retrospective nature of the Explanations, leading to the disallowance being directed for deletion. The Tribunal allowed the appeal, emphasizing the importance of decisions by the jurisdictional High Court for making adjustments under the Income Tax Act. The decision was pronounced on January 31, 2022.

This detailed analysis highlights the key legal arguments, interpretations of provisions, and the Tribunal's decision in the appeal against the disallowance of employee contributions to EPF and ESI Fund.