2021 (10) TMI 844 - AT - Income Tax

Tribunal grants deduction for PF and ESI contributions before tax return due date

The Tribunal allowed the appeal, directing the Assessing Officer to grant deduction for employees' contribution to PF and ESI made before the due date of ... Deductibility of employees' contribution to PF and ESI - Payment before due date of filing return under section 139(1) - Clarificatory versus substantive retrospective amendment - Application of Finance Act, 2021 amendment to section 36(1)(va) and section 43B - Precedential effect of jurisdictional High Court decisionDeductibility of employees' contribution to PF and ESI - Payment before due date of filing return under section 139(1) - Precedential effect of jurisdictional High Court decision - Deduction of employees' share of PF and ESI paid before the due date of filing the return of income. - HELD THAT: - The Tribunal applied the view of the Hon'ble Karnataka High Court in Essae Teraoka (P.) Ltd. v. DCIT that an employer is entitled to deduction of the employees' contribution to PF and ESI where such contribution is paid prior to the due date for filing the return under section 139(1) of the Income-tax Act. Although the remittance under the PF/ESI statutes was not within the statutory monthly due, the tribunal held that payment made before the return-filing due date satisfies the condition for allowance. The Tribunal relied on consistent earlier orders holding the same principle and directed the Assessing Officer to allow the deduction where payment was so made. [Paras 7]Deduction of the employees' contribution to PF and ESI granted as payment was made before the due date of filing return under section 139(1); AO directed to allow the deduction.Clarificatory versus substantive retrospective amendment - Application of Finance Act, 2021 amendment to section 36(1)(va) and section 43B - Precedential effect of jurisdictional High Court decision - Whether the Finance Act, 2021 amendments to section 36(1)(va) and section 43B operate retrospectively to deny deduction for the relevant assessment year. - HELD THAT: - The Tribunal considered whether the Finance Act, 2021 amendments were merely declaratory/clarificatory and hence retrospective. Relying on the Supreme Court principle that a provision said to remove doubts is not to be presumed retrospective if it changes the law as earlier construed, the Tribunal concluded that the amendments alter the law adversely to the assessee and are not retrospective. The amendments are effective from 01.04.2021 and apply prospectively (from AY 2021-2022). The Tribunal further noted and followed earlier tribunal decisions taking the same view. [Paras 7]Amendments made by Finance Act, 2021 to section 36(1)(va) and section 43B do not apply to assessment year 2018-2019; they are prospective and therefore do not deny deduction for that year.Final Conclusion: Appeal allowed: deduction of employees' PF and ESI contributions is to be granted for AY 2018-2019 where payment was made before the due date of filing return under section 139(1); the Finance Act, 2021 amendments to sections 36(1)(va) and 43B are prospective and do not apply to the said assessment year. Issues:1. Disallowance of employees' contribution to PF and ESI.2. Interpretation of amendments to section 36(1)(va) and 43B of the Income Tax Act, 1961.Issue 1: Disallowance of employees' contribution to PF and ESI:The appeal involved the disallowance of employees' contribution to PF and ESI by the assessee. The assessee contended that the contributions were made before the due date of filing the return under section 139(1) of the Income Tax Act, relying on a judgment of the Hon'ble Karnataka High Court. The CIT(A) upheld the disallowance, citing amendments to section 36(1)(va) and 43B of the Act. The Tribunal, considering a similar case precedent, held that the assessee was entitled to deduction as the payment was made before the due date of filing the return, in line with the Karnataka High Court's judgment.Issue 2: Interpretation of amendments to section 36(1)(va) and 43B:The Tribunal analyzed whether the amendments to section 36(1)(va) and 43B of the Income Tax Act, introduced by the Finance Act, 2021, were clarificatory and declaratory. Citing a recent Supreme Court judgment, the Tribunal concluded that the amendments altered the law adversely to the assessee and were not retrospective. The Tribunal referred to various tribunal orders to support the prospective nature of the amendments. Consequently, the Tribunal held that the amendments did not apply for the relevant assessment year, directing the Assessing Officer to grant deduction for employees' contribution to PF and ESI made before the due date of filing the return under section 139(1) of the Act.In conclusion, the Tribunal allowed the appeal filed by the assessee, directing the Assessing Officer to grant deduction for the employees' contribution to PF and ESI. The judgment emphasized adherence to the due dates specified under the Acts and the applicability of legal precedents in determining the allowability of deductions.