Tribunal rules Finance Act amendment not retroactive, directs deletion of disallowance.

The Tribunal held that the amendment by the Finance Act, 2021, to Sections 36(1)(va) and 43B is prospective and does not apply to the assessment year 2019-2020. The AO was directed to delete the disallowance of Rs. 1,43,030, and the appeal was allowed. The Tribunal distinguished the Supreme Court's judgment in CIT Vs. Gold Coin Health Food Pvt. Ltd. and rejected the Standing Counsel's plea to await the outcome of the SLP filed against the Gujarat High Court judgment.

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Issues Involved:

1. Whether the CIT(A) erred in confirming the addition of contributions to employees' provident fund (PF) and employees' state insurance corporation (ESI) made by the AO.
2. Whether Section 43B of the Income Tax Act has an overriding effect on Section 36(1)(va) concerning the deduction of employees' contributions.
3. Whether the amendment to Section 36(1)(va) and Section 43B by the Finance Act, 2021, is retrospective or prospective in nature.

Issue-wise Detailed Analysis:

1. Confirmation of Addition by CIT(A):

The appeal was filed against the CIT(A)'s order dated 30.06.2021 for the assessment year 2019-2020. The assessee contested that the CIT(A) erred in confirming the AO's addition of contributions to employees' PF and ESI, arguing these were paid in the previous year. The AO had disallowed a sum of Rs. 1,43,030 due to late remittance of employees' contributions under the respective Acts. The CIT(A) concluded that the amendment to Sections 43B and 36(1)(va) by the Finance Act, 2021, is clarificatory and retrospective, thus confirming the addition.

2. Overriding Effect of Section 43B:

The assessee argued that Section 43B of the Income Tax Act, which allows deductions for payments made before the due date for filing returns under Section 139(1), should override Section 36(1)(va). The assessee cited the Karnataka High Court judgment in Essae Teraoka Pvt. Ltd Vs. DCIT, which held that deductions are permissible if payments are made before the return filing due date. However, the CIT(A) did not accept this argument, relying on judicial pronouncements favoring the Revenue.

3. Retrospective or Prospective Nature of Amendments:

The primary contention was whether the amendment to Sections 36(1)(va) and 43B by the Finance Act, 2021, is retrospective. The CIT(A) treated the amendment as retrospective, but the Tribunal, referencing the Bangalore Bench's decision in M/s. Shakuntala Agarbathi Company Vs. DCIT, held that the amendment is not clarificatory and thus not retrospective. The Tribunal cited the Supreme Court's judgment in M.M. Aqua Technologies Limited v. CIT, which stated that retrospective provisions in a taxing Act cannot be presumed if they alter the law as it previously stood.

The Tribunal further noted that the amendment explicitly stated it would apply from 1st April 2021, affecting assessment years from 2021-22 onwards. The Tribunal also referenced several orders from various benches supporting the prospective nature of the amendment.

Conclusion:

The Tribunal concluded that the amendment by the Finance Act, 2021, to Sections 36(1)(va) and 43B is prospective and does not apply to the assessment year 2019-2020. Consequently, the AO was directed to delete the disallowance of Rs. 1,43,030, and the appeal filed by the assessee was allowed. The Tribunal emphasized that the judgment of the Supreme Court in CIT Vs. Gold Coin Health Food Pvt. Ltd. was distinguishable and not applicable to the present case. The Tribunal also rejected the Standing Counsel's plea to await the outcome of the SLP filed against the Gujarat High Court judgment, given the binding precedent from the Karnataka High Court.

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