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2022 (3) TMI 422 - AT - Income TaxDisallowing employees contribution to PF ESI - payments made beyond the due date prescribed under respective statutes, but before the due date prescribed u/s 139(1) - Scope of amendment by Finance Act, 2021, 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 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. Whether the CIT(A) is justified in disallowing employees’ contribution to PF and ESI, which was paid before the due date of filing of the return of income u/s 139(1) of the I.T. Act. Detailed Analysis: Issue 1: Disallowance of Employees' Contribution to PF and ESI Background: The assessee filed a return of income for the assessment year 2018-2019, declaring an income of ?1,06,34,930. However, an intimation u/s 143(1) of the I.T. Act assessed the income at ?1,33,11,810 due to the disallowance of ?26,76,883 for late remittance of employees’ contribution to PF and ESI. Assessee's Argument: The assessee argued before the First Appellate Authority that the employees' contribution was paid before the due date of filing the return under section 139(1) of the Act, thus entitling them to a deduction under section 43B of the Act. The assessee relied on the Karnataka High Court judgment in Essae Teraoka Pvt. Ltd Vs. DCIT, which supported this view. CIT(A)'s Decision: The CIT(A) differentiated between the employer’s and employees’ contributions to PF and ESI, holding that only the employer’s contribution is deductible under section 43B if paid before the due date of filing the return. The CIT(A) also cited the Supreme Court judgment in CIT Vs. Gold Coin Health Food Pvt. Ltd., asserting that the amendment to section 36(1)(va) and 43B by the Finance Act, 2021, is clarificatory and retrospective. Tribunal's Analysis: The Tribunal reviewed the case and the relevant judgments. It noted that the Bangalore Bench of the Tribunal in M/s. Shakuntala Agarbathi Company Vs. DCIT had followed the Karnataka High Court's ruling in Essae Teraoka Pvt. Ltd Vs. DCIT, which allowed the deduction of employees’ contributions to PF and ESI if paid before the due date of filing the return under section 139(1). The Tribunal also held that the amendment by the Finance Act, 2021, to sections 36(1)(va) and 43B is not clarificatory and does not have retrospective effect. Key Findings: 1. Essae Teraoka Pvt. Ltd. Ruling: The Karnataka High Court held that contributions made on or before the due date for filing the return of income under section 139(1) are deductible. 2. Supreme Court's Stance on Retrospectivity: The Supreme Court in M.M. Aqua Technologies Limited v. CIT ruled that retrospective provisions in a taxing Act cannot be presumed to be retrospective if they alter the law. 3. Prospective Application of Amendments: The Tribunal cited various judgments indicating that the amendments to sections 36(1)(va) and 43B by the Finance Act, 2021, are prospective and applicable from the assessment year 2021-2022 onwards. Conclusion: The Tribunal concluded that the CIT(A)'s reliance on the Supreme Court's judgment in CIT Vs. Gold Coin Health Food Pvt. Ltd. was misplaced. The amendment to sections 36(1)(va) and 43B is not retrospective. Therefore, for the assessment year 2018-2019, the employees’ contributions paid before the due date of filing the return under section 139(1) are deductible. The Tribunal directed the Assessing Officer to allow the deduction and deleted the disallowance made. Result: The appeal filed by the assessee was allowed. The order was pronounced on December 20, 2021.
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