2022 (2) TMI 228 - AT - Income Tax

Late remittance of employees contribution to PF and ESI - As submitted assessee had paid the employees contribution prior to the due date of filing of the return u/s 139(1) - Scope of amendment to section 36(1)(va) and 43B - HELD THAT - As in Bangalore Bench of the Tribunal in the case of M/s. Shakuntala Agarbathi Company 2021 (10) TMI 1196 - ITAT BANGALORE by following the dictum laid down 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) - Also 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. By following the binding decision of the Hon ble jurisdictional High Court in the case of Essae Teraoka Pvt. Ltd Vs. DCIT (supra), the 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 - Decided in favour of assessee.

Issues Involved:
1. Applicability of Section 43B vs. Section 36(1)(va) of the Income Tax Act.
2. Interpretation of the term "contribution" under Section 43B.
3. Jurisdictional High Court rulings on the issue.
4. Retrospective vs. prospective application of the Finance Act 2021 amendments to Sections 36(1)(va) and 43B.
5. Validity of the CIT(A)'s decision based on the retrospective application of amendments.

Detailed Analysis:

1. Applicability of Section 43B vs. Section 36(1)(va) of the Income Tax Act:
The assessee argued that Section 43B of the Income Tax Act supersedes Section 36(1)(va). The term "payable" is not defined in the Act, but accounting principles consider any unpaid amount recorded at the end of the year as payable. Therefore, contributions to provident funds should be deductible if paid before the due date for filing returns under Section 139(1).

2. Interpretation of the Term "Contribution" under Section 43B:
The term "contribution" includes both employer and employee contributions. The assessee contended that Section 43B(b) allows deductions for contributions to provident funds if paid on or before the due date for filing returns under Section 139(1). This interpretation is supported by various provisions under the Employees' Provident Funds Scheme, 1952, which mandate that the employer initially pays both contributions.

3. Jurisdictional High Court Rulings on the Issue:
The assessee cited the Karnataka High Court's ruling in Essae Teraoka Pvt. Ltd. vs. DCIT, which held that contributions made before the due date for filing returns under Section 139(1) are deductible. This ruling was followed by the ITAT in the case of M/s. Shakuntala Agarbathi Company vs. DCIT, reinforcing that contributions paid before the due date for filing returns are deductible.

4. Retrospective vs. Prospective Application of the Finance Act 2021 Amendments:
The CIT(A) rejected the assessee's appeal, holding that the amendments to Sections 36(1)(va) and 43B by the Finance Act 2021 are retrospective. However, the Tribunal disagreed, citing the Supreme Court's ruling in M.M. Aqua Technologies Limited vs. CIT, which held that amendments are not retrospective unless explicitly stated. The Tribunal held that the amendments are prospective, effective from 01.04.2021, and do not apply to the assessment year 2019-2020.

5. Validity of the CIT(A)'s Decision Based on Retrospective Application of Amendments:
The Tribunal found that the CIT(A)'s decision was incorrect as it relied on the retrospective application of the Finance Act 2021 amendments. The Tribunal directed the Assessing Officer to grant deductions for contributions paid before the due date for filing returns under Section 139(1), following the jurisdictional High Court's ruling in Essae Teraoka Pvt. Ltd. vs. DCIT.

Conclusion:
The Tribunal allowed the appeal, holding that the assessee is entitled to deductions for contributions to PF and ESI made before the due date for filing returns under Section 139(1). The amendments by the Finance Act 2021 to Sections 36(1)(va) and 43B are prospective and do not apply to the assessment year 2019-2020. The disallowance made by the Assessing Officer was deleted, and the appeal filed by the assessee was allowed.

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