2022 (5) TMI 1590 - AT - Income Tax

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 ... Delay in deposit of PF and ESIC - ‘due date’ determination - employee contribution of provident fund(PF) and ESIC was disallowed u/s 36(1)(va) as delay in deposits - assessee has deposited the amount before filing of the return of income u/sec 139(1) - HELD THAT:- We considering the overall facts, circumstances and the submissions find on the similar issue, the Co- ordinate Bench of this Hon’ble Tribunal in M/s Kalpesh Synthetics Pvt Ltd [2022 (5) TMI 461 - ITAT MUMBAI] when the due date under Explanation to Section 36(1)(va) is judicially held to be not decisive for determining the disallowance in the computation of total income, there is no good reason to proceed on the basis that the payments having been made after this due date is “indicative” of the disallowance of expenditure in question. While preparing the tax audit report, the auditor is expected to report the information as per the provisions of the Act, and the tax auditor has done that, but that information ceases to be relevant because, in terms of the law laid down by Hon’ble Courts, which binds all of us as much as the enacted legislation does, the said disallowance does not come into play when the payment is made well before the due date of filing the income tax return under section 139(1). Viewed thus also, the impugned adjustment is vitiated in law, and we must delete the same for this short reason as well. Also we are of the reasoned view that the amendment to section 36(1)(va) of the Act will not be applicable to assessment year 2018-19. The assessee has deposited the employee’s contribution of Provident fund & ESIC before the due date of return of income u/sec 139(1) of the Act. Accordingly, we set-aside the order of the CIT(A) and direct the assessing officer to delete the disallowance and allow the grounds of appeal in favour of the assessee. 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.