Tribunal allows appeals, directs deletion of EPF & ESI disallowance. Amendments effective from 1.04.2021.

The Tribunal allowed the appeals of the assessees by directing the Assessing Officer/CPC to delete the disallowance of employees' contribution to EPF and ESI as the contributions were remitted before the due date for filing the return of income. The Tribunal held that the amendments made by the Finance Act, 2021 to Sections 36(1)(va) and 43B are effective from 1.04.2021 and apply to the assessment year 2021-22 and subsequent years, concluding that no disallowance is warranted for belated payment of employees' contributions.

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Issues Involved:
1. Disallowance of employees' contribution to ESI and PF under Section 36(1)(va) of the Income Tax Act, 1961.
2. Applicability of the amendments brought by the Finance Act, 2021 to Sections 36(1)(va) and 43B of the Income Tax Act.
3. Retrospective or prospective applicability of the amendments.

Issue-wise Detailed Analysis:

1. Disallowance of Employees' Contribution to ESI and PF:
The main issue in these appeals was the disallowance of employees' contribution to ESI and PF under Section 36(1)(va) of the Income Tax Act, 1961. The Centralized Processing Centre (CPC) Bangalore and the Assessing Officers disallowed these contributions as they were deposited after the due date under the relevant Acts but before the due date for filing the return of income under Section 139(1) of the Act. The CIT (Appeals) upheld these disallowances, relying on various case laws.

2. Applicability of Amendments by Finance Act, 2021:
The Department argued that the amendments brought by the Finance Act, 2021, which inserted Explanation 2 in Section 36(1)(va) and Explanation 5 in Section 43B, are clarificatory in nature and thus have retrospective applicability. The amendments clarified that the provisions of Section 43B do not apply to the determination of the due date under Section 36(1)(va).

3. Retrospective or Prospective Applicability of Amendments:
The counsels for the assessees argued that the amendments are prospective and applicable from Assessment Year 2021-22 onwards. They cited the jurisdictional High Court's decision in CIT Vs. AIMIL Ltd. 321 ITR 508 and the Hon'ble Supreme Court's decision in M.M. Aqua Technologies Ltd. Vs. CIT (Civil Appeal Nos. 4742–4743 of 2021 dated 11.08.2021), which held that retrospective provisions in a Tax Act for the removal of doubts cannot be presumed to be retrospective if they alter or change the law as it earlier stood.

Detailed Judgment Analysis:

1. Disallowance of Employees' Contribution to ESI and PF:
The Tribunal noted that while processing the return under Section 143(1) of the Act, no disallowance towards contribution to employees' PF and ESI is warranted as this issue is highly debatable in nature. The Tribunal observed that the issue is covered by the jurisdictional High Court's decision in CIT Vs. AIMIL Ltd. 321 ITR 508 and the Hon'ble Supreme Court's decision in CIT Vs. M/s. Alom Extrusions Limited (2009) 319 ITR 306 (SC).

2. Applicability of Amendments by Finance Act, 2021:
The Tribunal referred to the Hon'ble Supreme Court's decision in M.M. Aqua Technologies Ltd. Vs. CIT, which held that retrospective provisions in a Tax Act cannot be presumed to be retrospective if they alter or change the law as it earlier stood. The Tribunal also referred to its own decision in a batch of appeals, including Raj Kumar Vs. ITO CPC Bangalore in ITA. No. 1392/Del/2021, where it was held that the amendment brought by Finance Act, 2021 is effective from 1.04.2021 and no disallowance is called for on belated payment of employees' contribution to ESI and PF if the assessee deposited the contribution before the due date for filing of return of income.

3. Retrospective or Prospective Applicability of Amendments:
The Tribunal concluded that the amendments made by the Finance Act, 2021 to Sections 36(1)(va) and 43B are effective from 1.04.2021 and apply to the assessment year 2021-22 and subsequent years. The Tribunal held that no disallowance is called for belated payment of the employees' contribution to ESI and PF if the assessee deposited the same before the due date of filing the Income Tax Return.

Conclusion:
The Tribunal directed the Assessing Officer/CPC to delete the disallowance of employees' contribution to EPF and ESI in all these cases as the contributions were remitted before the due date for filing of return of income. Consequently, all the appeals of the assessees were allowed.

Order Pronounced:
The order was pronounced in the open court on 15-06-2022.

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