2022 (8) TMI 1177 - AT - Income Tax

Addition u/s. 43B and 36(1)(va) - delayed payment of employees' contribution deposited by employer with the EPF and ESIC authorities - Payment beyond the due date specified under the relevant laws but before the due date for filing the return of income under section 139 of the Act - scope of amendment in section 36(1)(va) as well as section 43B - HELD THAT - The explanatory memorandum to the Finance Act, 2021 proposing amendment in section 36(1)(va) as well as section 43B is applicable only from 01.04.2021. These provisions impose a liability on an assessee and therefore cannot be construed as applicable with retrospective effect unless the legislature specifically says so. The aforesaid amendment is applicable only prospectively i.e., from 1.4.2021. We are therefore of the view that the impugned additions made under section 36(1)(va) of the Act, deserves to be deleted. - Decided in favour of assessee.

Summary

Issues:
1. Justification of addition under section 43B for delayed payment of employees' contribution.

Analysis:
The appeal pertains to the addition of Rs. 1,91,927 in Assessment Year 2019-20 under section 43B of the Income Tax Act, 1961, concerning delayed payment of employees' contribution to EPF and ESIC. The assessee contended that the employees' share of ESI was paid before the due date for filing the return u/s. 139(1) of the Act, citing precedents like CIT vs. Alom Extrusions Ltd. The CIT(A) referred to the Finance Act, 2021 amendments to sections 36(1)(va) and 43B, clarifying that the provisions of section 43B shall not apply for determining the "due date" under section 36(1)(va).

The CIT(A) emphasized the distinction between employees' and employer's contributions, noting that failure to pay employees' contribution negates the employer's deduction permanently under section 36(1)(va), while delay in employer's contribution payment defers the deduction under section 43B. The CIT(A) held that the amendments were clarificatory and applicable retrospectively, upholding the AO's addition.

The High Court in Essae Teraoka Pvt. Ltd. held that employees' contribution under section 36(1)(va) falls under section 43B, allowing deduction if paid before the due date for filing the return. However, the retrospective applicability of the Finance Act, 2021 amendments was debated. The tribunal opined that the amendments were prospective from 01.04.2021, necessitating deletion of the additions under section 36(1)(va).

The learned DR argued for retrospective application based on Supreme Court guidelines, but the tribunal disagreed, stating that the legislature did not make the amendments retrospective. As the amendments imposed liabilities without removing hardships, they were deemed prospective. Consequently, the appeal of the assessee was allowed, emphasizing the non-retrospective nature of the amendments.

In conclusion, the tribunal's decision favored the assessee, highlighting the prospective application of the Finance Act, 2021 amendments and the distinction between employees' and employer's contributions under the Income Tax Act.