2022 (8) TMI 351 - AT - Income Tax

Late remittance of employees contribution to PF and ESI - assessee had paid the employees contribution to PF and ESI prior to the due date of filing of the return u/s 139(1) - scope of amendment - HELD THAT - On identical facts, the 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). As 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. Accordingly, we decide this issue in favour of the assessee

Summary

Issues:
1. Disallowance of employees' contribution to PF and ESI.
2. Applicability of amendments to section 36(1)(va) and 43B of the Income Tax Act.
3. Jurisdictional interpretation and precedents.

Issue 1: Disallowance of employees' contribution to PF and ESI:
The appellant contested the disallowance of Rs.1,14,685 for late remittance of employees' contribution to PF and ESI. The CIT(A) upheld the disallowance, stating only the employer's contribution is deductible under section 43B if paid before the due date of filing the return. The appellant argued for deduction based on the Essae Teraoka Pvt. Ltd case judgment. The Tribunal, following the Essae Teraoka case, allowed the deduction as payments were made before the due date of filing the return, rejecting the retrospective operation of the Finance Act, 2021 amendments.

Issue 2: Applicability of amendments to section 36(1)(va) and 43B:
The Tribunal analyzed the Finance Act, 2021 amendments to section 36(1)(va) and 43B. It held that the amendments were not clarificatory but altered the law adversely to the assessee. Citing the M.M.Aqua Technologies case, the Tribunal concluded that the amendments cannot be considered retrospective. Additionally, it referenced various Tribunal orders affirming the prospective nature of the amendments from 01.04.2021, applicable for assessment year 2021-2022 onwards, not impacting the relevant assessment year of 2019-2020.

Issue 3: Jurisdictional interpretation and precedents:
The Tribunal relied on the Essae Teraoka case judgment, emphasizing that employees' contribution to PF and ESI, if paid before the due date of filing the return, is an allowable deduction. It distinguished between employer and employee contributions, aligning with the Essae Teraoka decision. The Tribunal referenced precedents and judicial pronouncements to support its decision, highlighting that the amended provisions of section 43B and 36(1)(va) were not applicable for the relevant assessment year, leading to the deletion of the disallowance made by the Assessing Officer.

In conclusion, the Tribunal allowed the appeal, directing the Assessing Officer to grant deduction for employees' contribution to ESI, as payments were made before the due date of filing the return, in line with the Essae Teraoka case and rejecting the retrospective application of the Finance Act, 2021 amendments.