Tribunal Rules Amendment to Section 36(1)(va) Not Retroactive, Orders Deletion of PF and ESIC Disallowances for 2018-19

The Tribunal allowed the appeal in favor of the assessee, setting aside the CIT(A)'s order. It directed the AO to delete the disallowances related to employee contributions for PF and ESIC, concluding that the amendment to section 36(1)(va) was not applicable retrospectively to the assessment year 2018-19. The Tribunal emphasized the importance of applying the law specific to the relevant assessment year and relied on judicial decisions to interpret the tax provisions. The issue regarding the claim of deduction under section 36 was not further addressed in the judgment.

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Issues:
1. Scope of adjustments permissible under section 143(1)(a).
2. Addition of gratuity provision written back.
3. Disallowance of employee contributions for PF and ESIC.
4. Claim of deduction under section 36 of the Income Tax Act, 1961.

Scope of adjustments permissible under section 143(1)(a):
The appellant challenged the additions made by the CPC, arguing they exceeded the permissible adjustments under section 143(1)(a). The AR submitted that the gratuity provision written back, initially disallowed, was later rectified through a section 154 application. Consequently, the second ground of appeal was withdrawn. The Tribunal dismissed the withdrawn ground. The AR contended that the CIT(A) did not consider the applicable law for the assessment year, emphasizing that the amended provisions were effective from April 1, 2021. The AR relied on judicial decisions to support the appeal, while the DR argued that the amendment to section 36(1)(va) was retrospective. The Tribunal noted that the amendment was introduced in the Finance Act 2021, effective from April 1, 2021, and held that it would not apply to the assessment year 2018-19. Consequently, the Tribunal directed the AO to delete the disallowance and allowed the appeal in favor of the assessee.

Addition of gratuity provision written back:
The appellant contested the addition of Rs. 11,36,841 in respect of the gratuity provision written back, which was not allowed as a deduction in any prior assessment year. The AR informed that a section 154 application rectified this issue, leading to the withdrawal of the corresponding ground of appeal. The Tribunal dismissed the withdrawn ground, highlighting that the AR had not pressed the issue during the hearing.

Disallowance of employee contributions for PF and ESIC:
The appellant challenged the addition of Rs. 10,58,974 for the payment of employees' contributions for PF and ESIC made after the due date of the respective laws but before the due date of filing the income tax return. The CIT(A) upheld the addition, prompting the appeal to the Tribunal. The AR argued that the amendment to section 36(1)(va) was not applicable to the assessment year 2018-19, as it was introduced later. The Tribunal, considering judicial decisions and the facts presented, concluded that the amendment did not apply retrospectively and directed the AO to delete the disallowance, thereby allowing the appeal.

Claim of deduction under section 36 of the Income Tax Act, 1961:
The appellant contended that the DCIT CPC erred in not allowing the claim of deduction under section 36 of the Income Tax Act, 1961. However, this issue was not discussed further in the judgment, and no specific decision or direction was provided regarding this claim.

In conclusion, the Tribunal allowed the appeal filed by the assessee, setting aside the CIT(A)'s order and directing the AO to delete the disallowances related to employee contributions for PF and ESIC, based on the non-retrospective applicability of the relevant amendment. The judgment emphasized the importance of considering the specific law applicable to the assessment year in question and highlighted the significance of judicial decisions in interpreting tax provisions.

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