2022 (2) TMI 282 - 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.

Summary

Issues Involved:
1. Disallowance of employees' contribution to PF and ESI under section 36(1)(va) read with section 2(24)(x) of the Income Tax Act, 1961.
2. Applicability of the amendment made by the Finance Act, 2021, to section 36(1)(va) and 43B of the Income Tax Act, 1961.

Detailed Analysis:

1. Disallowance of Employees' Contribution to PF and ESI:
The assessee filed returns for the assessment years 2017-2018 and 2018-2019, declaring losses. However, the Centralized Processing Centre (CPC) disallowed ?40,11,281 for A.Y. 2017-2018 and ?20,33,965 for A.Y. 2018-2019 due to late remittance of employees' contributions to PF and ESI. The assessee contended that the contributions were paid before the due date for filing returns under section 139(1) and should be deductible under section 43B. The CIT(A) upheld the disallowance, differentiating between employers' and employees' contributions and relying on the Supreme Court's judgment in CIT Vs. Gold Coin Health Food Pvt. Ltd., which deemed the amendment clarificatory and retrospective.

2. Applicability of the Finance Act, 2021 Amendment:
The Tribunal examined whether the amendment to section 36(1)(va) and 43B by the Finance Act, 2021, was clarificatory and retrospective. The Tribunal referenced the Karnataka High Court's decision in Essae Teraoka Pvt. Ltd Vs. DCIT, which allowed deductions for contributions made before the return filing due date under section 139(1). The Tribunal also cited the Supreme Court's judgment in M.M. Aqua Technologies Limited v. CIT, which stated that retrospective provisions in taxing acts are not presumed retrospective if they alter the law.

Judgment:
The Tribunal followed the jurisdictional High Court's ruling in Essae Teraoka Pvt. Ltd Vs. DCIT, holding that the assessee is entitled to deductions for employees' contributions to PF and ESI if paid before the return filing due date under section 139(1). The Tribunal clarified that the Finance Act, 2021 amendment is not retrospective and applies from A.Y. 2021-2022 onwards. Consequently, the Tribunal allowed the assessee's appeals and directed the Assessing Officer to grant the deductions.

Conclusion:
The Tribunal concluded that the disallowance of employees' contributions to PF and ESI was incorrect, as the payments were made before the due date for filing returns. The amendment by the Finance Act, 2021, is prospective and does not apply to the assessment years in question. The appeals were allowed in favor of the assessee.