2021 (11) TMI 421 - AT - Income Tax

Tribunal Overturns Disallowance, Orders Deletion of Expenses

The Tribunal allowed the appeal, directing the Assessing Officer to delete the disallowance of Rs. 1,61,480 for the assessment year 2019-2020. It held ... Delayed deduction of the employees’ contribution of PF and ESI - scope of amendment by Finance Act, 2021 to section 36[1][va] and 43B - HELD THAT:- As in view of judgment in the case of Essae Teraoka Pvt. Ltd [2014 (3) TMI 386 - KARNATAKA HIGH COURT], the employees’ contribution paid before the due date of filing of the return u/s 139(1) of the I.T.Act is to be allowed as deduction u/s 43B of the I.T.Act. Therefore, the only issue to be decided in the instant case is whether the amendment to section 36(1)(va) and 43B of the I.T.Act by the Finance Act, 2021 is prospective or not. Since as categorically held that the amendment is prospective and not retrospective in operation, the learned Standing Counsel’s plea does not have any merit. In the instant case, the assessment year being 2019- 2020, the amendment by Finance Act, 2021 to section 36(1)(va) and 43B of the I.T.Act does not have application. Therefore, the A.O. is directed to delete the disallowance - Decided in favour of assessee. Issues Involved:1. Delay in filing the appeal.2. Validity of the addition made under Section 36(1)(va) of the Income Tax Act.3. Jurisdiction of the intimation under Section 143(1) of the Act.4. Timeliness of the remittance of employees' contribution to PF and ESI.5. Applicability of the amendment to Section 36(1)(va) and 43B by the Finance Act, 2021.6. Calculation and applicability of interest under Sections 234A, 234B, and 234C of the Act.Issue-wise Detailed Analysis:1. Delay in Filing the Appeal:The ITAT Registry noted a delay of 122 days in filing the appeal. However, this delay was not considered due to the Hon’ble Supreme Court's judgment in MP No.6651/2021 in SMW(c) No.3/2020 (In RE Cognizance for Extension of Limitation, judgment dated 27.04.2021), which extended the limitation period for all filings before Courts and Tribunals in the country. This extension was in force when the appeal was filed, thus negating any delay.2. Validity of the Addition Made Under Section 36(1)(va):The appellant contested the addition of Rs. 1,61,480 under Section 36(1)(va) for the late remittance of employees' contribution to PF and ESI. The CIT(A) upheld the addition, stating that the amendment to Sections 43B and 36(1)(va) by the Finance Act, 2021, is clarificatory and has retrospective operation. However, the Tribunal referenced the ITAT’s decision in M/s. Shakuntala Agarbathi Company Vs. DCIT, which held that the amendment by the Finance Act, 2021, is not clarificatory and does not have retrospective operation. Therefore, the addition under Section 36(1)(va) was not justified.3. Jurisdiction of the Intimation Under Section 143(1):The appellant argued that no addition under Section 36(1)(va) could be made in an intimation under Section 143(1) of the Act, rendering the addition without jurisdiction. The Tribunal did not specifically address this jurisdictional argument but focused on the substantive issue of whether the amendment was retrospective.4. Timeliness of Remittance of Employees' Contribution to PF and ESI:The appellant contended that the employees' contribution was remitted before the due date of filing the return under Section 139(1) of the Act, thus qualifying for deduction under Section 43B. The Tribunal agreed, referencing the Karnataka High Court’s decision in Essae Teraoka Pvt. Ltd Vs. DCIT, which held that contributions made before the due date for filing the return are deductible.5. Applicability of the Amendment to Section 36(1)(va) and 43B by the Finance Act, 2021:The Tribunal examined whether the amendment to Sections 36(1)(va) and 43B by the Finance Act, 2021, is clarificatory and retrospective. It concluded that the amendment is prospective, effective from 01.04.2021, and applies from the assessment year 2021-2022 onwards. The Tribunal cited various judicial pronouncements, including the Supreme Court's decision in CIT Vs. Vatika Township Pvt. Ltd., which emphasized that amendments imposing new obligations or altering the law adversely to the taxpayer are presumed to be prospective unless explicitly stated otherwise.6. Calculation and Applicability of Interest Under Sections 234A, 234B, and 234C:The appellant disputed the calculation of interest under Sections 234A, 234B, and 234C, arguing that it was incorrect in terms of quantum, period, rate, and method. However, the Tribunal did not address this issue in detail, as the primary focus was on the disallowance under Section 36(1)(va).Conclusion:The Tribunal directed the Assessing Officer to delete the disallowance of Rs. 1,61,480 for the assessment year 2019-2020, holding that the amendment by the Finance Act, 2021, to Sections 36(1)(va) and 43B is prospective and not applicable to the relevant assessment year. The appeal filed by the assessee was allowed.