Employees' contribution to PF and ESI before return filing remained deductible; Finance Act 2021 amendment held prospective.

Disallowance of employees' contribution to provident fund and ESI under section 36(1)(va) was examined on the basis of the statutory meaning of "due date" and the effect of the Finance Act, 2021 amendment. The pre-2021 position was treated as lacking an express explanation defining that term, and the prevailing view accepted deduction where the payment was made before filing the return, even if after the welfare-statute due date. The amendment introducing the explanations was taken as effective from 01.04.2021 and not retrospectively clarificatory. On that basis, the disallowance was held unsustainable and the addition was deleted in favour of the assessee.

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Issues: Whether disallowance of employees' contribution to provident fund and ESI under section 36(1)(va), where the amount was deposited after the statutory due date but before the due date for filing the return, was sustainable for the assessment year under appeal, and whether the amendment inserted by the Finance Act, 2021 applied retrospectively.

Analysis: The adjustment turned on the meaning of "due date" in section 36(1)(va). Prior to the Finance Act, 2021, the provision did not contain an express explanation defining that expression, and the prevailing judicial view had treated payment made before filing of the return as allowable in appropriate cases. The amendment introducing the explanations was treated as effective from 01.04.2021 and not as a clarificatory substitution operating retrospectively. The judgment also preferred the line of authority favourable to the assessee where conflicting views existed, and held that the disallowance could not be sustained merely because the payment was made after the welfare-statute due date when it was made before filing the return.

Conclusion: The disallowance was not justified and the addition was deleted in favour of the assessee.

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