2022 (10) TMI 314 - AT - Income Tax

Rectification of mistake u/s 154 - Delayed Employees contribution to the Employee Provident Fund and Employee State Insurance Fund - addition u/s 2(24)(x) r/w s. 36(1)(va) - amount being deposited before the due date of filing the return of income u/s. 139 (1) - scope of amendment - Retrospectivity - HELD THAT - In view of the foregoing, no question of the said Explanations being read as retrospective, so as to apply for the relevant year, sustaining the impugned additions, which therefore fail. This is, however, subject to any decision/s by the Hon'ble jurisdictional High Court, which would, where so, hold, even justifying a rectification u/s. 154/254(2), even where rendered after the date of the order sought to be rectified. See SAURASHTRA KUTCH STOCK EXCHANGE LTD 2008 (9) TMI 11 - SUPREME COURT and SMT. ARUNA LUTHRA. 2001 (8) TMI 84 - PUNJAB AND HARYANA HIGH COURT No such decision has been found, or otherwise pointed out by the parties, as was the case before the Tribunal in Nikhil Mohine 2021 (11) TMI 927 - ITAT JABALPUR any such decision, even if discovered later, may operate to amend this order, or the order giving appeal effect thereto, to bring it in conformity or agreement with the said decision/s, of course, after allowing a fair opportunity of hearing to the assessee. The impugned additions, therefore, could not have been made under the given facts and circumstances of the case, and are directed for deletion. We decide accordingly. Assessee appeal allowed.

Summary

Issues:
- Disallowance of employee's contribution to employee welfare funds deposited beyond due date under Income Tax Act
- Interpretation of section 2(24)(x) r/w section 36(1)(va) for deductibility of employee's contribution
- Retrospective application of Explanations to sections 36(1)(va) and 43B
- Conflict of judicial opinions regarding the deductibility of employee's contribution

Analysis:

Issue 1: Disallowance of employee's contribution to employee welfare funds
The appellant contested the disallowance of employee's contribution to the employee welfare funds due to late deposit beyond the specified due date. The Revenue relied on judicial decisions like CIT v. Gujarat State Road Transport Corporation and Unifac Management Services (India) P. Ltd. to support the disallowance. However, the Tribunal noted a cleavage of judicial opinion on this matter, making it a debatable issue not suitable for determination under section 143(1). The Tribunal's decision in Nikhil Mohine emphasized the need for a decision by the jurisdictional High Court to justify any adjustment under the Act.

Issue 2: Interpretation of section 2(24)(x) r/w section 36(1)(va)
The Tribunal examined the applicability of section 2(24)(x) and section 36(1)(va) to the deductibility of employee's contribution to the employee welfare funds. It highlighted the legal fiction created by the provision, deeming the employee's contribution as the assessee-employer's income. The Tribunal emphasized the need to respect the legislative intent behind the provisions and clarified that the deductibility of the contribution should be governed by section 36(1)(va) rather than section 43B(b).

Issue 3: Retrospective application of Explanations
The Tribunal analyzed the retrospective application of Explanations to sections 36(1)(va) and 43B introduced by the Finance Act, 2021. While the Explanations sought to resolve the conflicting judicial opinions, the Tribunal noted that they were proposed as prospective amendments. The Tribunal concluded that the Explanations should only take effect from Assessment Year 2021-22 based on the plain reading of the relevant documents.

Issue 4: Conflict of judicial opinions
The Tribunal acknowledged the conflict of judicial opinions regarding the deductibility of employee's contribution to the employee welfare funds. It emphasized the importance of a decision by the jurisdictional High Court to justify any adjustments under the Act. The absence of a relevant decision by the High Court led the Tribunal to rule in favor of the appellant, directing the deletion of the impugned additions.

In conclusion, the Tribunal allowed the appellant's appeal, emphasizing the need for a decision by the jurisdictional High Court to determine the deductibility of employee's contribution to the employee welfare funds under the Income Tax Act. The Tribunal highlighted the importance of legislative intent and the limited scope of adjustments under section 143(1) in resolving the conflicting judicial opinions on this matter.