2022 (10) TMI 973 - AT - Income Tax

Non deposit of employees contribution to provident fund within the time allowed under prescribed Act - as submitted assessee has deposited the amount before filing of the return of income u/s. 139(1) of the Act and there is a delay in depositing the employees contribution to provident fund - scope of amendment - HELD THAT - We find 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 2018-19. 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 ground of appeal in favour of the assessee. CPC cannot make adjustment relating to section 43B or 36(1)(va) in 143(1)(a) assessment, even otherwise without giving proper notice to the assessee with regard to enhancement - We are in agreement with the submissions of the assessee that the Assessing Officer does not have any mandate u/s. 143(1)(a)(i) to (vi) of the Act. The adjustment made by the Assessing Officer are outside the mandate of section 143(1) of the Act. Therefore, even in this count, the assessment made by the Assessing Officer is bad in law. In the result, Ground No.2 also allowed.

Issues Involved:
1. Disallowance of employees' contribution to Provident Fund (PF) and Employees' State Insurance Corporation (ESIC) under Section 36(1)(va).
2. Validity of adjustments made by the Centralised Processing Centre (CPC) under Section 143(1)(a).
3. Applicability of amendments to Section 36(1)(va) and Section 43B by the Finance Act, 2021, to earlier assessment years.

Issue-Wise Detailed Analysis:

1. Disallowance of Employees' Contribution to PF and ESIC:
The assessee contended that the National Faceless Appeal Centre (NFAC) erred in confirming the disallowance of Rs. 2,54,592/- made by the CPC on account of employees' contribution to PF and ESIC by wrongly applying the provisions of Section 36(1)(va) of the Income-tax Act. The assessee argued that the contributions were deposited before the due date for filing the return of income under Section 139(1) of the Act, and thus, should be allowed as deductions.

The Tribunal referred to multiple judicial precedents, including the Bangalore Bench decision in the case of M/s. BI Worldwide India Pvt Ltd. v. DCIT, which held that contributions made before the due date of filing the return of income should be allowed. Similarly, the Hyderabad Bench in the case of Shri Satish Kumar Sinha v. ITO also held that no disallowance could be made if the contributions were deposited before the due date for filing the return of income.

The Tribunal concluded that the provisions of Section 36(1)(va) and Section 43B, as amended by the Finance Act, 2021, are not applicable retrospectively and should not affect the assessment year 2018-19. Therefore, it directed the Assessing Officer to grant the deduction for the employees' contributions to PF and ESIC.

2. Validity of Adjustments Made by CPC under Section 143(1)(a):
The assessee argued that the CPC's disallowance does not fall within the scope of "adjustments" specified under Section 143(1)(a) of the Act. The Tribunal agreed with the assessee's contention, stating that the adjustments made by the CPC were beyond the mandate of Section 143(1)(a)(i) to (vi) of the Act. The Tribunal emphasized that such adjustments require proper notice to the assessee, which was not provided in this case.

Consequently, the Tribunal held that the assessment made by the CPC was invalid and bad in law, as the adjustments were outside the scope of Section 143(1).

3. Applicability of Amendments to Section 36(1)(va) and Section 43B by the Finance Act, 2021:
The assessee contended that the NFAC erred in interpreting that the amendments made to Section 36(1)(va) and Section 43B by the Finance Act, 2021, would apply to earlier years. The Tribunal referred to the Supreme Court's judgment in the case of M.M. Aqua Technologies Limited v. CIT, which held that retrospective provisions in a taxing Act cannot be presumed to be retrospective if they alter or change the law as it earlier stood.

The Tribunal noted that the amendment to Section 36(1)(va) and Section 43B by the Finance Act, 2021, alters the position of law adversely to the assessee and cannot be applied retrospectively. It further cited several Tribunal decisions that held the amendment to be prospective in nature, effective from 01.04.2021, and applicable from assessment year 2021-2022 onwards.

Therefore, the Tribunal concluded that the amendment does not apply to the assessment year 2018-19, and the assessee's contributions made before the due date for filing the return of income should be allowed as deductions.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, directing the Assessing Officer to delete the disallowance of employees' contributions to PF and ESIC and to grant the deductions. Additionally, it held that the CPC's adjustments under Section 143(1)(a) were invalid and beyond the scope of the section. The Tribunal emphasized that the amendments to Section 36(1)(va) and Section 43B by the Finance Act, 2021, are not applicable retrospectively and should not affect the relevant assessment year.

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