Finance Act, 2021: Provident Fund & ESI contributions not disallowed pre-AY 2021-22

The tribunal held that the amendments introduced by the Finance Act, 2021, regarding disallowances under section 36(1)(va) of the Income Tax Act for employees' contributions to Provident Fund and ESI are prospective and apply from Assessment Year (AY) 2021-22 onwards. Contributions made before the due date of filing the return of income should not be disallowed for assessment years prior to AY 2021-22. The appeals were allowed, and the disallowances made by the CIT(A) were directed to be deleted.

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Issues Involved:
1. Disallowances under section 36(1)(va) of the Income Tax Act regarding Employees' Contribution to Provident Fund/ESI.
2. Retrospective applicability of the amendments to section 36 and section 43B by the Finance Act, 2021.

Detailed Analysis:

1. Disallowances under section 36(1)(va) of the Income Tax Act regarding Employees' Contribution to Provident Fund/ESI:

The primary issue involves the disallowance of employees' contributions to Provident Fund (PF) and Employees' State Insurance (ESI) under section 36(1)(va) of the Income Tax Act. The disallowance was based on the contributions being deposited after the due date as prescribed under the respective statutes but before the due date for filing the return of income under section 139(1).

The appellant argued that the CIT(A) wrongly concluded that the amended provision was retrospective and wrongly denied the benefit of section 43B to the assessee. The appellant relied on various decisions, including those from the Delhi Bench and Kolkata Bench, which supported the view that contributions made before the due date of filing the return should not be disallowed.

On the contrary, the respondent (Revenue) argued that the disallowance was justified based on the amendments made by the Finance Act, 2021, which clarified that the provisions of section 43B do not apply to employees' contributions under section 36(1)(va).

2. Retrospective Applicability of the Amendments to Section 36 and Section 43B by the Finance Act, 2021:

The Finance Act, 2021, introduced amendments to section 36 and section 43B, explicitly stating that the provisions of section 43B do not apply to employees' contributions under section 36(1)(va). The amendment included an Explanation 2 to section 36(1)(va) and Explanation 5 to section 43B, clarifying that these provisions are not applicable for determining the due date for employees' contributions.

The appellant contended that these amendments are prospective and should not apply to assessment years prior to AY 2021-22. They cited various tribunal decisions, including the Mahadev Cold Storage case, which held that disallowance under section 43B is not permissible if contributions are made before the due date of filing the return of income.

The respondent, however, argued that the amendments are clarificatory and should be considered retrospective. They supported their argument by referencing the Supreme Court judgment in the case of Commissioner of Income Tax-I, Ahmedabad vs. Gold Coin Health Food Pvt. Ltd., which discussed the retrospective nature of declaratory statutes.

Conclusion:

The tribunal examined the rival contentions and various judicial precedents. It was noted that the amendment brought by the Finance Act, 2021, is prospective and applies from AY 2021-22 onwards. The tribunal relied on the decisions of multiple benches, including Lumino Industries Ltd. and Punjab Bevel Gears Ltd., which held that contributions made before the due date of filing the return of income should not be disallowed for assessment years prior to AY 2021-22.

The tribunal concluded that no disallowance is called for belated payment of employees' contributions to PF and ESI if the contributions are deposited before the due date of filing the income tax return. The appeals filed by the assessee were allowed, and the disallowances made by the CIT(A) were directed to be deleted.

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