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2022 (3) TMI 1030 - AT - Income TaxEmployees contribution to PF and ESI prior to the due date of filing of the return u/s 139(1) - HELD THAT - 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 by the Hon ble jurisdictional High Court in the case of Essae Teraoka Pvt. Ltd 2014 (3) TMI 386 - KARNATAKA HIGH COURT had 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) of the I.T.Act. It was further held by the ITAT that amendment by Finance Act 2021 to section 36 1 va and 43B of the Act is not clarificatory. 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 - 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. Accordingly we decide this issue in favour of the assessee.
Issues:
Disallowance of payment of PF/ESI, retrospective nature of amendments, interpretation of employees' contribution to PF/ESI, applicability of High Court decisions, rectification application rejection. Analysis: 1. Disallowance of Payment of PF/ESI: The appeals addressed the disallowance of payment of PF/ESI by the assessee. The CIT(A) confirmed the disallowance, citing that the issue is debatable and cannot be entertained from an order u/s 154 of the I.T. Act. However, the Tribunal, following the decision of the Hon'ble jurisdictional High Court, held that the assessee is entitled to deduction of employees' contribution to PF and ESI if payments were made before the due date of filing the return of income u/s 139(1) of the I.T. Act. The amendment by Finance Act, 2021, was deemed not clarificatory, and the assessee's appeals were allowed based on this issue. 2. Retrospective Nature of Amendments: The Tribunal analyzed whether the amendments to section 36(1)(va) and 43B by Finance Act, 2021, had retrospective effect. Citing the judgment in the case of M.M.Aqua Technologies Limited v. CIT, it was concluded that the amendments altered the law adversely to the assessee and were not retrospective. The Tribunal referred to previous orders affirming that the amendments were only prospective in nature, effective from 01.04.2021, and would apply from the assessment year 2021-2022 onwards. Consequently, the Tribunal directed the AO to grant deduction for employees' contribution to ESI for the relevant assessment year. 3. Interpretation of Employees' Contribution to PF/ESI: The issue revolved around the interpretation of employees' contribution to PF and ESI. The Tribunal upheld that the employees' contribution paid by the assessee before the due date of filing the return of income u/s 139(1) of the I.T. Act is an allowable deduction. By following the decision of the Hon'ble jurisdictional High Court, the disallowance made by the Assessing Officer was deleted, and the issue was decided in favor of the assessee. 4. Applicability of High Court Decisions: The Tribunal extensively referred to the judgment of the Hon'ble jurisdictional High Court in the case of Essae Teraoka Pvt. Ltd Vs. DCIT to support its decisions. The Tribunal emphasized that the High Court's decision was binding and guided the resolution of the issues related to employees' contribution to PF and ESI, ultimately leading to allowing the appeals filed by the assessee. 5. Rectification Application Rejection: The case involved the rejection of the rectification application filed by the assessee under section 154 of the I.T. Act by the CPC. The rejection of the rectification application was a crucial aspect of the case, leading to subsequent appeals before the first appellate authority and eventually before the Tribunal. The Tribunal's decision to allow the appeals also addressed this aspect of the case. In conclusion, the Tribunal's judgment in the appeals addressed the various issues comprehensively, providing detailed analysis and referencing relevant legal provisions and precedents to arrive at decisions favoring the assessee on the matters related to disallowance of PF/ESI payments, retrospective nature of amendments, interpretation of employees' contribution, applicability of High Court decisions, and rectification application rejection.
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