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TMI Blog2022 (4) TMI 1273X X X X Extracts X X X X X X X X Extracts X X X X ..... lated payment of employee s contribution. We also noted from the memorandum explaining the provisions to Finance Act, 2021, wherein relevant Clauses to said memorandum clearly intended that the amendment shall take effect from 01.04.2021 and will accordingly apply to assessment year 2021-22 and subsequent assessment years. We are of the view that the amendment brought in the statue i.e., by Finance Act, 2021, the provisions of Section 36(1)(va) r.w.s. 43B of the Act amended by inserting explanation 2 is prospective and not retrospective. Hence, the amended provisions of Section 43B r.w.s. 36(1)(va) of the Act are not applicable for the assessment year under consideration i.e. 2018-19 but will apply from assessment year 2021-22 and subsequent assessment years. Hence, this issue raised in assessee s appeal is allowed. X X X X Extracts X X X X X X X X Extracts X X X X ..... 16 82,400 24.08.2016 15.08.2016 August, 2016 78,021 12.10.2016 15.09.2016 September, 2016 78,410 09.11.2016 15.10.2016 October, 2016 80,194 16.12.2016 15.11.2016 November, 2016 83,965- 16.12.2016 15.12.2016 December, 2016 76,983 25.01.2017 15.01.2017 January, 2017 64,187 03.04.2017 15.02.2017 February, 2017 65,130 22.04.2017 15.03.2017 March, 2017 67,366 17.05.2017 15.04.2017 Total 9,01,213 Details of Deposition of E.S.I. Month Amount Actual date of deposition Due Date of deposition April, 2016 29,083 13.06.2016 15.05.2016 May, 2016 32,051 15.07.2016 15.06.2016 June, 2016 32,564 12.08.2016 15.07.2016 July, 2016 34241 14.09.2016 15.08.2016 August, 2016 32483 10.10.2016 15.09.2016 September, 2016 32613 11.11.2016 15.10.2016 October, 2016 33447 15.12.2016 15.11.2016 November, 2016 34959 13.01.2017 15.12.2016 December, 2016 32059 13.02.2017 15.01.2017 January, 2017 28262 17.03.2017 15.02.2017 February, 2017 29640 17.05.2017 15.03.2017 March, 2017 31971 22.04.2017 15.04.2017 Total 3,83,373 5. In first appeal the assessee carrie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eference: "55.1 From the combined reading of sections 2(24)(x) and 36(1)(va), the position emerges that any contribution made by the employees to any Provident Fund, Superannuation Fund, Employees' State Insurance Fund or any other fund for the welfare of such employees received by the assessee from his employees shall be deemed to be income of the assessee of the relevant year. However, the assessee will get the deduction therefore under section 36(1)(va) only if he deposits the sum received from employees before the due date specified under the Act, Rule, Order or Notification governing the funds mentioned above. Thus the provision of section 438, which is applicable in respect of employer's contribution, is quite different than the provision of section 36(1)(va) which is applicable in respect of employees' contribution. So far as the employer's contribution is concerned, as per proviso to section 43B, the deduction is permissible if the payment is made on or before the due date for filing of the return as specified under section 139(1) of the Income-tax Act. But in respect of the employees' contribution, the deduction would be permissible only if the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;ble Supreme Court noticed, is looking at the spirit behind the labour welfare legislation and the need for the employer to satisfy the remittance within the time provided under the statute creating the welfare fund. At least with respect to the employee'scontributions, which the employer deducts from the salary of ,the employees, if it is not remitted into the fund within the due date, the employer not only has defaulted the stipulation in the labour legislation but has received an income; albeit an illegal enrichment. Sub-section (v) is with respect to and confined to a gratuity fund and does not have any relevance here. We, hence, answer the other questions of law framed, also against the assessee and in favour of the Revenue." Uniface Mangement services India Pvt. Ltd. vs. DCIT (2019) 260 Taxman 60 (Madras HC) The gist of the order is provided below for ease of reference. IT. Scope of section 438 and section 36(1)(va) are different and thus, there is no question of reading both provisions together to consider as to whether assessee-employer is entitled to deduction in respect of sum belatedly paid towards employee contribution, and therefore, for considering suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the adjustment made by the AO will fall in the category of S.143(1)(a)(ii) of the Act as it was an incorrect claim of deduction u/s 36(1)(va) of the Act. The ld. CIT(A) observed that it is not in dispute that appellant's ROI itself shown the delay in payments of Employee's contribution to PF/ESIC amounting to ₹ 12,84,590/- within the "due date" prescribed as per Explanation 2 Section 36(1)(va) and that by virtue of deeming provision of Section 2(24)(x) r.w.s 36(1)(va) of the Act, deduction was not admissible to the assessee for ₹ 12,84,590/- based on the ROI and the information contained therein. Hence, the AO rightly invoked provisions of S.143(1)(a)(ii) of the Act and made the adjustment for such incorrect claim made by the assessee. 8. Aggrieved by the order of the ld. CIT(A), the assessee is in appeal before us. The Ld. AR for the assessee submitted that the payment to employee's contribution towards PF and ESI was made before the date of filing the return of income by the assessee U/s 139(1) of the Act. The ld. Counsel for the assessee apart from that relied on the decisions which was referred in the CIT(A). 9. Similarly the Jaipur Bench of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9/2021. In the said order it has been held vide paras 7 to 11 in ITA No. 59/Jodh/2021 for the assessment years 2015-16 in the case of Mohangarh Engineers and Construction Company Vs. DCIT and in the case of Bikaner Ceramics Private Limited, Bikaner Vs. ADIT, CPC, Bangaluru, in ITA No. 60/Jodh/2021 for the A.Y. 2019-20 as under:- 7. We have considered the submission of both the parties and perused the material available on record. 8. In the present cases, it is not in dispute that the assessees deposited the contribution of PF & ESI belated in terms of section 36(1)(va) of the Act, however, the said deposits were made prior to filing of return of income u/s 139(1) of the Act. 8.1 Identical issue with the similar facts have already been adjudicated by the various Benches of the ITAT. 8.2 In the case of Harendra Nath Biswas vs DCIT Koltaka, ITA No. 186/Kol/2021 for the A.Y. 2019-20, similar issue has been decided vide order dated 16.7.2021 by the ITAT 'B' Bench, Kolkata. The Relevant findings have been given in para 4 of the said order, which read as under;- "4. We have heard both the parties and perused the record. First of all we do not countenance this action of the Ld. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... copy of this order, if applied for, be supplied to the parties subject to compliance with all requisite formalities." In the light of the aforesaid discussion we do not accept the Ld. CIT(A)'s stand denying the claim of assessee since assessee delayed the employees contribution of EPF & ESI fund and as per the binding decision of the Hon'ble High Court in Vijayshree Ltd. (supra) u/s 36(1)(va) of the Act since assessee had deposited the employees contribution before filing of Return of Income. Therefore, the assessee succeeds and we allow the appeal of the assessee." 9. Similar view has been taken by the ITAT Hyderabad 'SMC" Bench in ITA No. 644/Hyd./2020 for the AY 2019-20 in the case of Salzgitter Hydraulics Private Ltd, Hyderabad vs ITO vide order dt 15.6.2021. The relevant findings given in para 2 of the said order read as under:- "2. Coming to the sole substantive issue of ESI/PF disallowance of ₹ 1,09,343/- and ₹ 3,52,622/-, the assessee's and revenue's stand is that the same has been paid before the due date of filing sec. 139(1) return and after the due date prescribed in the corresponding statutes; respectively. I notice in this factual backdrop that the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an High Court in case of CIT vs. State Bank of Bikaner & Jaipur wherein the Hon'ble High Court after extensively examining the matter and considering the various decisions of the Hon'ble Supreme Court and various other High Courts has decided the matter in favour of the assessee. In the said decision, the Hon'ble High Court was pleased to held as under: "20. On perusal of Sec.36(1)(va) and Sec.43(B)(b) and analyzing the judgments rendered, in our view as well, it is clear that the legislature brought in the statute Section 43(B)(b) to curb the activities of such tax payers who did not discharge their statutory liability of payment of dues, as aforesaid; and rightly so as on the one hand claim was being made under Section 36 for allowing the deduction of GPF, CPF, ESI etc. as per the system followed by the assessees in claiming the deduction i.e. accrual basis and the same was being allowed, as the liability did exist but the said amount though claimed as a deduction was not being deposited even after lapse of several years. Therefore, to put a check on the said claims/deductions having been made, the said provision was brought in to curb the said activities and which was approved ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowed under Section 43B or under Section 36(1)(va) of the IT Act." 16. The said decision has subsequently been followed in CIT vs. Jaipur Vidyut Vitran Nigam Ltd. (supra), CIT vs. Udaipur Dugdh Utpadak Sahakari Sangh Ltd. (supra), and CIT vs Rajasthan State Beverages Corporation Limited (supra). In all these decisions, it has been consistently held that where the PF and ESI dues are paid after the due date under the respective statues but before filing of the return of income under section 139(1), the same cannot be disallowed under section 43B read with section 36(1)(va) of the Act. 17. We further note that though the ld. CIT(A) has not disputed the various decisions of Hon'ble Rajasthan High Court but has decided to follow the decisions rendered by the Hon'ble Delhi, Madras, Gujarat and Kerala High Courts. Given the divergent views taken by the various High Courts and in the instant case, the fact that the jurisdiction over the Assessing officer lies with the Hon'ble Rajasthan High Court, in our considered view, the ld CIT(A) ought to have considered and followed the decision of the jurisdictional Rajasthan High Court, as evident from series of decisions referred supra, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the employer not only pays interest and delayed payment but can incur penalties also, for which specific provisions are made in the those Acts. In so far as Income-tax Act, 1961, is concerned, the assessee can get the benefit of deduction of the payments, if the actual payment is made before the return is filed. Where for the assessment year 2002-03 the assessee had deposited employer's contribution as well as employees' contribution towards provident fund and ESI after the due date, as prescribed under the relevant Act/Rules but before the due date for filing the return under the Income-tax Act: Held accordingly, that no disallowance could be made in view of the provisions of Section 43B as amended by the Finance Act, 2003." 14. From the above discussion, it is clear that there are series of decisions of various Hon'ble High Courts on this issue and even Hon'ble Jurisdictional High Court in the case of M/s. Industrial Security & Intelligence India P Ltd., (supra) held that the payment of employees contribution in regard to PF & ESI if made before the due date of filing of return of income u/s.139(1) of the Act, the same is allowable as deduction as per the provisions of Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... service or otherwise. Section 43B specifies the list of deductions that are admissible under the Act only upon their actual payment. Employer's contribution is covered in clause (b) of section 43B. According to it, if any sum towards employer's contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of the employees is actually paid by the assessee on or before the due date for furnishing the return of the income under sub-section (1) of section 139, assessee would be entitled to deduction under section 43B and such deduction would be admissible for the accounting year. This provision does not cover employee contribution referred to in clause (va) of sub-section (1) of section 36 of the Act. Though section 43B of the Act covers only employer's contribution and does not cover employee contribution, some courts have applied the provision of section 43B on employee contribution as well. There is a distinction between employer 40 contribution and employee's contribution towards welfare fund. It may be noted that employee's contribution towards welfare funds is a mechanism to ensure the compliance by the employers of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considering the above findings of CIT(A), now we have gone through ratio laid down by the Hon'ble Supreme Court in the case of CIT vs. Vatika Township Pvt. Ltd. (2014) 367 ITR 466, wherein the Hon'ble Supreme Court held that unless contrary intention appears, a legislation is presumed not to be intended to have a retrospective operation. The idea behind the rule is that a current law should govern current activities. The law passed today cannot be applied to the events of the past. The Hon'ble Supreme Court held that if somebody does something today, he do it keeping in view the law of today and in force and not tomorrow's backward adjustment of it. According to Hon'ble Apex court every human being is entitled to arrange his affairs by relying on the existing law and should not find that his plans have been retrospectively upset. This principle of law is known as lex prospicit non respicit, which means law looks forward not backward. In the case of Vatika Township Pvt. Ltd., (Supra), the issue under challenge before Hon'ble Supreme Court was the insertion of proviso to section 113 of the Act by the Finance Act 2002 for charging of surcharge. Hon'ble Supreme Court noted that though ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ided such amendment to be either retrospective or clarificatory. In so far as amendment to Section 113 is concerned, there is no such language used and on the contrary, specific stipulation is added making the provision effective from 1st June, 2002. (e) There is yet another very interesting piece of evidence that clarifies the provision beyond any pale of doubt, viz. understanding of CBDT itself regarding this provision. It is contained in CBDT circular No.8 of 2002 dated 27th August, 2002, with the subject "Finance Act, 2002 - Explanatory Notes on provision relating to Direct Taxes". This circular has been issued after the passing of the Finance Act, 2002, by which amendment to Section 113 was made. In this circular, various amendments to the Income Tax Act are discussed amply demonstrating as to which amendments are clarificatory/retrospective in operation and which amendments are prospective. For example, explanation to Section 158BB is stated to be clarificatory in nature. Likewise, it is mentioned that amendments in Section 145 whereby provisions of that section are made applicable to block assessments is made clarificatory and would take effect retrospectively from 1st day ..... 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