Tribunal rules Finance Act 2021 amendment not retroactive, allows deductions for PF/ESI contributions

The Tribunal allowed the appeal, ruling that the amendment to section 36(1)(va) and 43B by Finance Act, 2021 was prospective and did not apply to the relevant assessment year. The decision clarified that deductions for employees' contributions to PF and ESI were permissible if paid before the due date for filing the return of income u/s 139(1) of the Act, based on judicial pronouncements and the nature of the amendment itself.

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Issues:
- Disallowance of employees' contribution to PF and ESI under section 36(1)(va) of the Income Tax Act
- Retrospective nature of the amendment to section 36(1)(va) and 43B by Finance Act, 2021

Issue 1: Disallowance of employees' contribution to PF and ESI under section 36(1)(va) of the Income Tax Act:
The appeal was against the CIT(A)'s order upholding the disallowance of employees' contribution to PF and ESI amounting to Rs. 1,22,245 under section 36(1)(va) of the Income Tax Act. The assessee contended that the payments were made before the due date for filing the return u/s 139(1) of the Act, citing judicial pronouncements. However, the CIT(A) affirmed the disallowance, considering the amendment by Finance Act, 2021 as retrospective. The CIT(A) held that the amendments clarified that any delay in depositing employees' contributions would not be allowed as a deduction. The assessee further appealed to the Tribunal, arguing that the amendment was clarificatory and retrospective.

Issue 2: Retrospective nature of the amendment to section 36(1)(va) and 43B by Finance Act, 2021:
The Tribunal analyzed whether the amendment to section 36(1)(va) and 43B by Finance Act, 2021 was clarificatory and retrospective. The Tribunal considered previous orders and judicial decisions to determine the nature of the amendment. It was highlighted that the Hon'ble jurisdictional High Court's judgment emphasized that deductions for employees' contributions to PF and ESI were permissible if paid before the due date for filing the return of income u/s 139(1) of the Act. The Tribunal concluded that the amendment was not retrospective as it altered the law adversely to the assessee and was effective from 01.04.2021 onwards. Relying on various Tribunal orders, the Tribunal held that the amendment was only prospective and directed the Assessing Officer to grant the deduction for employees' contributions to PF and ESI for the relevant assessment year, A.Y. 2019-2020.

In conclusion, the Tribunal allowed the appeal, emphasizing that the amendment to section 36(1)(va) and 43B by Finance Act, 2021 was prospective and did not apply to the relevant assessment year. The decision was based on the principle that deductions for employees' contributions to PF and ESI were permissible if paid before the due date for filing the return of income u/s 139(1) of the Act, as established by judicial pronouncements and the nature of the amendment itself.

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