2022 (2) TMI 216 - AT - Income Tax

Addition u/s. 36(1)(va) - Delayed employees' contribution to PF and ESI - as argued appellant collected ESI and PF from salary of the employees and whole of the amount had been deposited well before the due date of filing of Income Tax Return - scope of amendment - HELD THAT - As the amendments carried out by the Finance Act, 2021 in Section 36(1)(va) and 43B were considered by the First Appellate Authority to be clarificatory in nature, hence, retrospective in operation. We have seen that this issue has been considered by the jurisdictional High Court in the case of CIT Vs Hemla Embroidery Mills (P) Ltd. 2013 (2) TMI 41 - PUNJAB AND HARYANA HIGH COURT as following the decision in case of Alom Extrusions Limited 2009 (11) TMI 27 - Supreme Court wherein it has been held that Second Proviso to Section 43B omitted by F.A, 2003 with effect from 1.4.2004 was clarificatory in nature and was to operate retrospectively. Once that is so, the respondent-assessee was entitled to deduction in respect of employer and employee's contribution to ESI and Provident Fund as the same had been deposited prior to the filing of the return u/s 139(1). - Decided in favour of assessee

Issues Involved:
1. Contravention of Section 250(6) of the Income Tax Act, 1961.
2. Addition of ?8,08,313/- under Section 36(1)(va) of the Act despite timely deposit before the due date of filing Income Tax Return.
3. Authority of AO (CPC) to make such addition under Section 143(1).
4. Retrospective vs. prospective application of the explanation inserted under Section 36(1)(va) by Finance Act, 2021.

Issue-wise Detailed Analysis:

1. Contravention of Section 250(6) of the Income Tax Act, 1961:
The appellant contended that the CIT(A), NFAC, erred by passing the order in contravention of the provisions of Section 250(6) of the Income Tax Act, 1961. The tribunal did not specifically address this issue in the judgment, focusing instead on the substantive issues related to the additions made under Section 36(1)(va) and the retrospective application of amendments.

2. Addition of ?8,08,313/- under Section 36(1)(va) of the Act despite timely deposit before the due date of filing Income Tax Return:
The tribunal noted that the employees' contribution to PF and ESI was deposited before the due date of filing the return under Section 139(1) of the Income Tax Act, although there was a delay as per the specific Act. The tribunal referenced multiple decisions, including those from the ITAT Chandigarh Bench and the jurisdictional High Court, which consistently held that such contributions, if deposited before the due date of filing the return, should not be disallowed. The tribunal concluded that the disallowance was not sustainable and directed its deletion.

3. Authority of AO (CPC) to make such addition under Section 143(1):
The appellant argued that the AO (CPC) lacked the power to make the addition under Section 143(1). The tribunal did not explicitly address this issue, but the overall judgment implies that the addition itself was not justified, rendering the question of the AO's authority moot.

4. Retrospective vs. prospective application of the explanation inserted under Section 36(1)(va) by Finance Act, 2021:
The tribunal extensively discussed whether the amendment to Section 36(1)(va) by the Finance Act, 2021, was retrospective or prospective. It referenced various decisions from different ITAT benches, which consistently held that the amendments were prospective, applicable from the assessment year 2021-22 onwards. The tribunal also cited the "Notes on Clauses" from the Finance Bill, 2021, which clarified that the amendments would take effect from April 1, 2021. Consequently, the tribunal held that the disallowance based on the retrospective application of the amendment was incorrect and directed the deletion of the addition.

Conclusion:
The appeal was allowed, with the tribunal holding that the addition of ?8,08,313/- under Section 36(1)(va) was not sustainable as the contributions were deposited before the due date of filing the return. The tribunal emphasized that the amendments introduced by the Finance Act, 2021, were prospective and not applicable to the assessment year in question. The decision was pronounced in the presence of the parties via Webex on January 12, 2022.

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