2022 (9) TMI 490 - AT - Income Tax

Delayed ESI/PF contribution - Assessee's plea that the same has been paid before the due date of filing of Income-tax return u/s. 139(1) and after the due date prescribed in the corresponding statutes - HELD THAT - The legislature has not only incorporated necessary amendment in Sections 36(1)(va) as well as 43B vide Finance Act, 2021 to this effect but also the CBDT has issued Memorandum of Explanation that the same applies w.e.f. 1.4.2021 only. It is further not an issue that the foregoing legislative amendments have proposed employers' contribution/disallowance u/s. 43B of the Act as against employee's contribution u/s. 36(1)(va) of the Act; respectively. The similar issue has been decided by the Hyderabad Bench in the case of M/s. Chiphercloud India Pvt. Ltd 2021 (6) TMI 1118 - ITAT HYDERABAD and also keeping in mind the fact that the same has been clarified to be applicable only with prospective effect from 1.4.2021, we hold that the impugned disallowance is not sustainable in view of all these latest developments. The impugned ESI/PF disallowance is directed to be deleted therefore. Hence, we allow the appeal of the assessee.

Summary

Issues:
1. Disallowance under section 36(1)(va) of the Income Tax Act, 1961.
2. Interpretation of legislative amendments in Finance Act, 2021 regarding ESI/PF contributions.
3. Applicability of CBDT Circular No. 22/2015 and retrospective application of legislative amendments.

Analysis:
1. The appeal was against an order of the National Faceless Appeal Centre (NFAC) regarding disallowance under section 36(1)(va) of the Income Tax Act, 1961. The appellant contended that the order was erroneous and contrary to law as interpreted by the jurisdictional High Court. The appellant also cited judgments to support their case.

2. The appellant argued that the CBDT Circular No. 22/2015 cannot override the provisions of section 43B, and the amendments introduced by the Finance Act, 2021 are prospective. The appellant emphasized that the legislative changes were not applicable retrospectively. The appellant relied on the judgment of the jurisdictional High Court in a similar case.

3. The Departmental Representative supported the lower authorities' decision, stating that the provisions of the Income Tax Act were clear regarding the treatment of employee contributions. The DR argued that the Finance Act, 2021 amendments were clarificatory and should be upheld.

4. The Tribunal considered the arguments and evidence presented by both sides. The main issue was the disallowance related to ESI/PF contributions. The Tribunal noted the legislative amendments in Sections 36(1)(va) and 43B introduced by the Finance Act, 2021, and the CBDT's clarification that the changes applied from 1.4.2021 onwards. The Tribunal also referenced a similar case decided by the Hyderabad Bench. Considering these factors, the Tribunal held that the disallowance was not sustainable and ordered it to be deleted.

5. Consequently, the Tribunal allowed the appeal of the assessee, ruling in favor of deleting the disallowance related to ESI/PF contributions. The decision was pronounced in court on the 4th day of August, 2022.