2022 (2) TMI 1217 - AT - Income Tax

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 ... Late remittance of ESI and PF dues - dues were remitted by the assessee well before due date of filing of return of income u/s 139(1) - HELD THAT:- In the light of aforesaid judicial precedents especially the decision of Hon’ble High Court of Madras in CIT v. Industrial Security & Intelligence India (P.) Ltd. [2015 (7) TMI 1063 - MADRAS HIGH COURT] and keeping in view the fact the Special Leave Petition (SLP) [2017 (7) TMI 1087 - SC ORDER] filed by the revenue against the decision of Hon’ble Rajasthan High Court favoring assessee has already been dismissed by Hon’ble Supreme Court [2017 (7) TMI 1087 - SC ORDER] we are inclined to take a view favoring the assessee. Accordingly, we would hold that the provisions of Sec.43B would override the provisions of Sec.36(1)(va) and accordingly, the employees’ contribution as paid by the assessee before due date of filing of return u/s 139(1) would still be an allowable deduction notwithstanding the fact that the payment was made beyond due date as specified in the relevant statute governing those welfare funds. So far as the effect of amendment brought in by Finance Act, 2021 is concerned, we find that Finance Act, 2021 has proposed amendment to Sec.36(1)(va) and Sec.43B to clarify the position that Sec.43B would never apply to such contributions. The controversy as to the date of applicability of amendment arises in view of the fact that both the Memorandum as well as the Finance Bill state that relevant amendment will take effect on 01/04/2021 and apply to Assessment Year 2021-22 and subsequent assessment years. The submissions of the revenue would be that the amendment is merely clarificatory in nature and would have retrospective operation. However, the assessee would maintain that the provisions would have prospective operations only and the pre-amended period would be largely guided by the ratio of judicial pronouncements favoring the assessee - Decided in favour of assessee. Issues Involved1. 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 Analysis1. 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, 2021The 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 AdjudicationThe 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.ConclusionThe 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.