2021 (10) TMI 842 - AT - Income Tax

Appeal allowed: PF contribution disallowance not justified under Income-tax Act

The Tribunal allowed the appeal of the assessee, ruling that the disallowance of employees' contribution to PF under section 36(1)(va) of the Income-tax ... Deduction under section 36(1)(va) for employers' contribution to provident fund - Timing of payment - 'due date' for purposes of deductibility linked to due date for furnishing return under section 139(1) - Effect of Explanation to section 36(1)(va) and Explanation 5 to section 43B inserted w.e.f. 1/4/2021 - prospectivityDeduction under section 36(1)(va) for employers' contribution to provident fund - Timing of payment - 'due date' for purposes of deductibility linked to due date for furnishing return under section 139(1) - Claim for deduction of employees' provident fund contribution paid after the statutory due date under the PF enactment but within the due date for filing return under section 139(1). - HELD THAT: - The Tribunal accepted the assessee's submission and the line of authority relied upon that for the purpose of section 36(1)(va) a payment of contribution to provident fund made on or before the due date for furnishing the return of income under section 139(1) is allowable as a deduction even if such payment was made after the due date prescribed under the PF enactment. Applying that principle to the facts, the Tribunal found that the assessee had made the impugned contribution after the PF Act's prescribed date but within the due date for filing the return under section 139(1), and therefore the amount could not be disallowed under section 36(1)(va). [Paras 6, 7, 8]Allowance of deduction: the contribution paid within the due date for filing return under section 139(1) is deductible notwithstanding that it was paid after the PF Act's prescribed date.Effect of Explanation to section 36(1)(va) and Explanation 5 to section 43B inserted w.e.f. 1/4/2021 - prospectivity - Whether the amendments/explanations inserted by the Finance Act 2021 (applicable w.e.f. 1/4/2021) could be applied retrospectively to deny deduction in assessment year 2017-18. - HELD THAT: - The Tribunal held that the explanatory amendments introduced by the Finance Act 2021 operate from the stated effective date (w.e.f. 1/4/2021) and cannot be applied retrospectively to assessments for earlier years. Consequently, the amended explanations to section 36(1)(va) and section 43B could not be invoked to disallow the assessee's claim for AY 2017-18, and the AO's disallowance based on the later-introduced explanation was therefore unsustainable. [Paras 11, 12]The Finance Act 2021 amendments/explanations are prospective (effective from 1/4/2021) and do not apply to AY 2017-18; the disallowance cannot be sustained on that basis.Final Conclusion: Appeal allowed: the Tribunal restored the deduction for the provident fund contribution for AY 2017-18 because the payment was made within the due date for filing the return under section 139(1), and the 2021 amendments/explanations operate prospectively from 1/4/2021 and do not affect the assessment year under consideration. Issues:1. Disallowance of employees' contribution to PF under section 36(1)(va) of the Income-tax Act.Detailed Analysis:1. Disallowance of Employees' Contribution to PF:The appeal was against the disallowance of an amount for delay in payment of employees' contribution to PF under section 36(1)(va) of the Income-tax Act. The assessee contended that the contribution was made within the due date of filing the return of income under section 139(1) of the Act for the relevant year, thus should not be disallowed. The assessee relied on the judgment in the case of Essac Teraoka (P.) Ltd. v. Dy. CIT 366 ITR 408 (Kar.) to support their argument. The Tribunal examined the provisions of the PF Act and the PF Scheme, emphasizing that the contribution should be paid on or before the due date for filing the return of income under section 139(1) of the IT Act to be eligible for deduction. The Tribunal disagreed with the revenue's argument that failure to deduct employees' contribution on time should be treated as income under the IT Act. The Tribunal endorsed its view with reference to a previous court decision and allowed the appeal in favor of the assessee, citing various judgments supporting their stance.2. Legal Interpretations and Precedents:The Tribunal also referred to the judgment of the Hon'ble Karnataka High Court in CIT v. Sabari Enterprises [2008] 298 ITR 141 (Kar.) to strengthen the argument regarding the due date for crediting contributions to employees' accounts. Additionally, the Tribunal discussed the amendment in section 43B of the Income-tax Act by the Finance Act 2003 and the subsequent explanatory notes to clarify the applicability of employees' contribution to PF. The Tribunal highlighted that the amended provision was effective from April 1, 2021, and could not be applied retrospectively to the assessment year 2017-18. Therefore, no disallowance could be made by the Assessing Officer for PF/ESI payments made within the due date of filing the return of income, even if they were beyond the dates specified in the respective Acts. The Tribunal concluded that the appeal of the assessee was justified based on the legal interpretations and precedents cited.3. Conclusion:In the final decision, the Tribunal allowed the appeal of the assessee, emphasizing that the disallowance of employees' contribution to PF under section 36(1)(va) of the Income-tax Act was not warranted in this case. The Tribunal's ruling was based on a thorough analysis of the relevant legal provisions, court judgments, and the effective date of the amendments, ensuring that the assessee's position was upheld. The order was pronounced on October 11, 2021, in favor of the assessee.