2022 (10) TMI 558 - AT - Income Tax

Delayed employees contribution of provident fund - scope of amendment - HELD THAT - The amendment was brought in Finance Act, 2021 w.e.f 01.04.2021. The law was not framed/amended in the relevant Assessment year and any legal proposition which cast additional burden/liability on the assessee cannot be implemented retrospectively. We considering the overall facts, circumstances, judicial decisions, are of the reasoned view that the amendment to section 36(1)(va) of the Act will not be applicable to Assessment Year 2019-20. The assessee has deposited the employees contribution of provident fund before the due date u/s. 139(1) of the Act. Accordingly, we set-aside the order of the Ld.CIT(A) and direct the assessing officer to delete the disallowance and allow the grounds of appeal in favour of the assessee.

Issues Involved:
1. Confirmation of addition of employees' contribution to PF/ESIC payment.
2. Legality of CPC Bangalore's order under section 143(1).
3. Non-following of jurisdictional High Court decision.
4. Preference of favorable view to the assessee when two views exist.
5. Application of Doctrine of Promissory Estoppel.
6. Non-consideration of the letter filed by the assessee.

Detailed Analysis:

1. Confirmation of Addition of Employees' Contribution to PF/ESIC Payment:
The assessee contended that the payment of employees' contributions to PF/ESIC was made before the due date for filing the return of income under section 139(1) of the Income Tax Act, 1961. The assessee argued that the amendment to section 36(1)(va) and 43B by the Finance Act, 2021, is prospective and effective from 01.04.2021, not retrospective. Judicial pronouncements cited by the assessee supported this view, including decisions from various ITAT benches and High Courts, which held that contributions made before the due date of filing the return should be allowed as deductions.

2. Legality of CPC Bangalore's Order under Section 143(1):
The assessee challenged the order dated 10.04.2021 by CPC Bangalore, which disallowed the PF/ESIC employees' contribution amounting to Rs. 4,43,496 on the grounds that section 143(1) only allows rectification of apparent mistakes, and the issue was highly debatable. The tribunal considered the rival submissions and judicial precedents, concluding that the amendment brought by the Finance Act, 2021, is prospective and does not apply to the assessment year 2019-20.

3. Non-following of Jurisdictional High Court Decision:
The assessee argued that the CIT(A) did not follow the decision of the jurisdictional High Court, which should have been binding. The tribunal referred to the case of Essae Teraoka (P.) Ltd. v. DCIT, where the Karnataka High Court held that employees' contributions to PF and ESI are deductible if paid before the due date of filing the return of income under section 139(1). The tribunal agreed with this view and allowed the deduction.

4. Preference of Favorable View to the Assessee When Two Views Exist:
The assessee contended that when two views are possible on an issue, the view favorable to the assessee should be preferred. The tribunal acknowledged this principle, citing various judicial precedents that supported the assessee's claim for deduction of PF/ESIC contributions made before the due date of filing the return.

5. Application of Doctrine of Promissory Estoppel:
The assessee argued that the Doctrine of Promissory Estoppel should apply, asserting that the amendment to section 36(1)(va) by the Finance Act, 2021, effective from 2021, should not affect the assessment year 2019-20. The tribunal considered this argument and concluded that the amendment is prospective and does not apply to the relevant assessment year.

6. Non-consideration of the Letter Filed by the Assessee:
The assessee claimed that the CIT(A) did not consider the letter dated 24/08/2021 in passing the final order. The tribunal did not explicitly address this issue but focused on the primary contention regarding the timing of PF/ESIC contributions and the applicability of the amendment.

Conclusion:
The tribunal, after considering the rival submissions, judicial precedents, and the facts of the case, concluded that the amendment to section 36(1)(va) by the Finance Act, 2021, is prospective and does not apply to the assessment year 2019-20. The tribunal directed the assessing officer to delete the disallowance and allowed the appeal in favor of the assessee. The appeal filed by the assessee was allowed.

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