Tribunal allows deduction for late employee contributions to Provident Fund & ESI, supports assessee's position.

The Tribunal allowed the appeal, directing the revenue to grant the deduction claimed by the assessee for the disallowed employee contributions to Provident Fund and Employees' State Insurance due to late remittance. It was held that deductions for employee contributions are permissible if paid before the due date for filing the return under Section 139(1), despite the specific requirements of Section 36(1)(va). The Tribunal determined that the amendment by Finance Act, 2021, operates prospectively from Assessment Year 2021-22, supporting the assessee's position and dismissing the revenue's arguments.

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Issues Involved
1. Disallowance of Employee's contribution to Provident Fund (PF) & Employees' State Insurance (ESI) under Section 36(1)(va) due to late remittance.
2. Applicability of the amendment made by Finance Act, 2021 to Sections 36(1)(va) and 43B.

Detailed Analysis

1. Disallowance of Employee's Contribution to PF & ESI under Section 36(1)(va)

The primary issue in the appeal concerns the disallowance of Rs. 6,47,265/- as Employee's contribution to PF & ESI under Section 36(1)(va) due to late remittance. The assessee contended that the payment was made before the due date of filing the return under Section 139(1), thus should be allowed as a deduction. The revenue, however, argued that the late remittance deprived employees of timely benefits and interest, and such contributions should not be allowed as deductions if not remitted within the due dates specified in the relevant statutes.

The Tribunal noted that the provisions of Section 43B allow deductions for employer's contributions if paid before the due date for filing the return of income under Section 139(1). However, Section 36(1)(va) specifies that employee contributions must be credited to the relevant fund on or before the due date as per the respective statutes. Despite this, higher courts have held that Section 43B’s provisions apply to employee contributions as well, allowing deductions if paid before the due date for filing the return of income.

2. Applicability of the Amendment by Finance Act, 2021

The Tribunal examined whether the amendment by Finance Act, 2021, which clarified that Section 43B does not apply to employee contributions, should be applied retrospectively or prospectively. The revenue argued for retrospective application, while the assessee contended it should be prospective.

The Tribunal referred to the decision in Adyar Anand Bhawan Sweets India Pvt. Ltd. v. ACIT, which held that the amendment would operate prospectively from Assessment Year 2021-22. This view aligns with the principle that amendments to taxing statutes intended to remove hardship should not impose retrospective liabilities on taxpayers.

Findings and Adjudication

The Tribunal found that the predominant judicial view, including decisions from various High Courts, supports the assessee's claim that employee contributions paid before the due date for filing the return under Section 139(1) should be allowed as deductions. This view was upheld by the Hon’ble Supreme Court, which dismissed the revenue's Special Leave Petition against the Rajasthan High Court's decision favoring the assessee.

The Tribunal noted that the jurisdictional High Court of Madras, in CIT v. Industrial Security & Intelligence India (P.) Ltd., supported the assessee's position, providing precedence over contrary decisions.

Conclusion

The Tribunal concluded that the provisions of Section 43B override Section 36(1)(va), allowing deductions for employee contributions paid before the due date for filing the return under Section 139(1). The amendment by Finance Act, 2021, operates prospectively from Assessment Year 2021-22, and does not apply to prior periods.

The appeal was allowed, directing the revenue to grant the deduction claimed by the assessee and recompute the income accordingly.

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