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2022 (6) TMI 330 - AT - Income TaxDisallowance u/s 36(1)(va) - Delayed Remittance of employees contribution towards provident fund - HELD THAT - Admitted facts of the present case are that the payments of PF ESI contribution relating employee's contribution are before the due date of filing of return of income U/s 139(1) of the Act. We have noted that the issue under consideration is covered by the decision of the Coordinate Bench in case of M/s. Mohanlal Khatri 2021 (11) TMI 1035 - ITAT JAIPUR - Thus it is clear that there are series of decisions of various Hon'ble High Courts on this issue and even Hon'ble Jurisdictional High Court in the case of M/s. Industrial Security Intelligence India P Ltd., 2015 (7) TMI 1063 - MADRAS HIGH COURT held that the payment of employees contribution in regard to PF ESI if made before the due date of filing of return of income u/s. 139(1) of the Act, the same is allowable as deduction as per the provisions of Section 2(24)(x) r.w.s. 36(1)(va) r.w.s. 43B. Whether by the Finance Act, 2021, the provisions of Section 36(1)(va) by inserting the Explanation 2 r.w.s. 43B of the Act have been amended, whereby it is clarified that the provisions of Section 43B of the Act shall not apply and shall be deemed ought to have been applied for the purpose of determining the due date under this clause? - As this amendment has been brought in the statute book to provide certainty about the applicability of provisions of Section 43B of the Act inspite of belated payment of employee's contribution. We also noted from the memorandum explaining the provisions to Finance Act, 2021, wherein relevant Clauses to said memorandum clearly intended that the amendment shall take effect from 01.04.2021 and will accordingly apply to assessment year 2021-22 and subsequent assessment years. Thus we are of the view that the amendment brought in the statue i.e., by Finance Act, 2021, the provisions of Section 36(1)(va) r.w.s. 43B of the Act amended by inserting explanation 2 is prospective and not retrospective. Hence, the amended provisions of Section 43B r.w.s. 36(1)(va) of the Act are not applicable for the assessment year under consideration i.e. 2018-19 but will apply from assessment year 2021-22 and subsequent assessment years. Hence, this issue raised in assessee's appeal is allowed.
Issues Involved:
1. Addition of Rs. 2,47,833/- for delay in remittance of employees' provident fund contributions. 2. Addition of Rs. 21,067/- for delay in remittance of employees' ESI contributions. Issue-wise Detailed Analysis: 1. Addition of Rs. 2,47,833/- for delay in remittance of employees' provident fund contributions: The assessee filed its income tax return for the assessment year 2018-19, declaring a total income of Rs. 5,32,317/-. The return was processed under Section 143(1) of the IT Act, 1961, resulting in a disallowance of Rs. 2,47,833/- due to the delayed remittance of employees' provident fund contributions. The assessee contended that these contributions were paid before the due date of filing the return of income, citing various judgments from the Rajasthan High Court, including "Rajasthan Renewable Energy Corp. Ltd." and "State Bank of Bikaner and Jaipur," which held that contributions paid before the filing of the return should not be disallowed under Section 36(1)(va) or Section 43B of the IT Act. The CIT(A) upheld the disallowance, stating that the adjustment made by the AO fell under Section 143(1)(a)(ii) of the Act, as the assessee's return itself showed the delay in payments. The CIT(A) noted that the amendment brought by the Finance Act, 2021, clarified that Section 43B does not apply to employees' contributions and is deemed never to have applied, thus supporting the disallowance. However, the ITAT observed that the payments were made before the due date of filing the return under Section 139(1) and referred to several ITAT decisions, including "Dhabriya Polywood Ltd. vs. ADIT," which held that the amendment by the Finance Act, 2021, is prospective and not retrospective. Therefore, the amended provisions of Section 43B read with Section 36(1)(va) do not apply to the assessment year 2018-19. The ITAT concluded that the addition of Rs. 2,47,833/- should be deleted. 2. Addition of Rs. 21,067/- for delay in remittance of employees' ESI contributions: Similar to the provident fund contributions, the assessee faced a disallowance of Rs. 21,067/- for delayed remittance of employees' ESI contributions. The CIT(A) upheld this disallowance based on the same reasoning applied to the provident fund contributions, citing the amendment brought by the Finance Act, 2021. The ITAT, however, reiterated its stance that the amendment is prospective and not applicable to the assessment year 2018-19. The ITAT referred to multiple decisions, including "Mohanlal Khatri vs. ACIT," which supported the view that contributions paid before the due date of filing the return under Section 139(1) should not be disallowed. Consequently, the ITAT directed the deletion of the addition of Rs. 21,067/-. Conclusion: The ITAT allowed the appeal of the assessee, holding that the amendments brought by the Finance Act, 2021, to Section 36(1)(va) and Section 43B are prospective and not applicable to the assessment year 2018-19. Therefore, the disallowances of Rs. 2,47,833/- for provident fund contributions and Rs. 21,067/- for ESI contributions were deleted. The judgment emphasized that contributions paid before the due date of filing the return under Section 139(1) should not be disallowed.
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