2022 (3) TMI 148 - AT - Income Tax

Allowability of employees contribution towards PF and ESI and depositing the same in the government account before the due date of filing of return of income U/s 139(1) - whether the amendment brought to Section 36(1)(va) as well as 43B of the Act is applicable retrospective or from assessment year 2021-22 as it is specifically stated in the memorandum of Finance Bill 2021? - HELD THAT - As decided in M/S KOGTA FINANCIAL (INDIA) LTD. VERSUS CPC BENGALURU. 2022 (1) TMI 250 - ITAT JAIPUR there are express wordings in the said memorandum which says these amendments will take effect from 1st April 2021 and will accordingly apply to assessment year 2021-22 and subsequent assessment years . In the instant case the impugned assessment year is assessment year 2018-19 and therefore the said amended provisions cannot be applied in the instant case. The addition by way of adjustment while processing the return of income u/s 143(1) so made by the CPC towards the deposit of the employees s contribution towards ESI and PF though paid before the due date of filing of return of income u/s 139(1) of the Act is hereby directed to be deleted - Appeal of the assessee is allowed.

Issues Involved:
1. Violation of the principle of faceless appeal.
2. Disallowance of late deposit of Employees' Contribution to ESIC and EPF.
3. Retrospective application of amendments in the Finance Act, 2021.
4. Disallowance due to non-deduction of TDS on interest paid.
5. Charging of interest under sections 234A, 234B, and 234C of the Income Tax Act, 1961.

Detailed Analysis:

1. Violation of the Principle of Faceless Appeal:
The assessee contended that the CIT(A), NFAC, Delhi violated the principle of faceless appeal, which aims to ensure justice for honest taxpayers and avoid unnecessary litigation. However, the judgment does not provide a detailed analysis or ruling on this ground, focusing more on the substantive tax issues raised.

2. Disallowance of Late Deposit of Employees' Contribution to ESIC and EPF:
The primary issue was the disallowance of the late deposit of employees' contributions to PF and ESIC, which were deposited before the due date of filing the return of income under Section 139(1) of the Income Tax Act, 1961. The assessee argued that as per binding precedents, if the payment is made before the due date of filing the return, no disallowance should be made under Section 43B. The CIT(A)/NFAC, however, confirmed the disallowance based on the amendments in Section 36(1)(va) and Section 43B of the Act, considering them retrospective in nature.

The Tribunal analyzed various high court decisions, including those from the Rajasthan High Court, which consistently held that payments made before the due date of filing the return cannot be disallowed under Section 43B. The Tribunal also considered the amendments introduced by the Finance Act, 2021, and concluded that these amendments are prospective and applicable from the assessment year 2021-22 onwards. Consequently, the Tribunal directed the deletion of the disallowance of ?1,97,867/- for the assessment year under consideration.

3. Retrospective Application of Amendments in the Finance Act, 2021:
The Tribunal examined whether the amendments to Section 36(1)(va) and Section 43B introduced by the Finance Act, 2021, are retrospective. The Tribunal referred to the memorandum explaining the amendments, which clearly stated that these amendments would take effect from 1st April 2021 and apply to the assessment year 2021-22 and subsequent years. Thus, the Tribunal held that the amendments are not retrospective and cannot be applied to the assessment year 2019-20.

4. Disallowance Due to Non-Deduction of TDS on Interest Paid:
The assessee did not press this ground during the hearing. Therefore, the Tribunal dismissed this ground as not pressed.

5. Charging of Interest Under Sections 234A, 234B, and 234C:
The assessee challenged the charging of interest under sections 234A, 234B, and 234C of the Income Tax Act, 1961. The Tribunal noted that these interests are mandatory, and the assessee would get consequential relief, if any, based on the outcome of the other issues.

Conclusion:
The Tribunal allowed the appeal of the assessee partly, specifically directing the deletion of the disallowance related to the late deposit of employees' contributions to PF and ESIC. The Tribunal upheld that the amendments in the Finance Act, 2021, are prospective and not applicable to the assessment year 2019-20. The other grounds were either dismissed or noted for consequential relief.

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