Tribunal allows appeal, directs AO to delete disallowance under Sections 36(1)(va) & 43B

The Tribunal allowed the appeal, directing the AO to delete the disallowance of Rs. 96,110 as the Finance Act, 2021 amendments to Sections 36(1)(va) and 43B were held not to apply retrospectively to the relevant assessment year (2018-2019). The appellant was deemed entitled to deduct employees' contributions to provident fund and state insurance as the payments were made before the due date for filing the return of income under Section 139(1).

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Issues Involved:

1. Confirmation of the addition of employees' provident fund and employees' state insurance corporation contributions by the CIT(A).
2. Interpretation of Section 43B and Section 36(1)(va) of the Income Tax Act.
3. Retrospective application of amendments made by the Finance Act, 2021.

Issue-wise Detailed Analysis:

1. Confirmation of the Addition of Employees' Provident Fund and Employees' State Insurance Corporation Contributions by the CIT(A):

The appellant contested the CIT(A)'s decision to uphold the Assessing Officer’s (AO) addition of contributions to employees' provident fund and employees' state insurance corporation. The appellant argued that these contributions were paid within the previous year and should be deductible under Section 43B of the Income Tax Act. The CIT(A) had concluded that the amendments to Sections 43B and 36(1)(va) by the Finance Act, 2021, were clarificatory and retrospective.

2. Interpretation of Section 43B and Section 36(1)(va) of the Income Tax Act:

The appellant argued that Section 43B, which allows deductions for certain expenses if paid before the due date of filing the return of income, overrides Section 36(1)(va). The appellant relied on the Karnataka High Court judgment in Essae Teraoka Pvt. Ltd Vs. DCIT, which held that contributions to employees' provident fund and state insurance paid before the due date of filing the return under Section 139(1) are deductible. The Tribunal referred to its previous decision in M/s. Shakuntala Agarbathi Company Vs. DCIT, which supported the appellant's stance, stating that the amendment by the Finance Act, 2021, to Sections 36(1)(va) and 43B is not clarificatory and does not apply retrospectively.

3. Retrospective Application of Amendments Made by the Finance Act, 2021:

The Tribunal examined whether the amendments to Sections 36(1)(va) and 43B by the Finance Act, 2021, were clarificatory and retrospective. The Tribunal concluded that the amendments were prospective, effective from April 1, 2021, and applicable from the assessment year 2021-2022 onwards. The Tribunal cited several judicial pronouncements, including the Supreme Court's decision in M.M. Aqua Technologies Limited v. CIT, which held that retrospective provisions in a taxing act cannot be presumed to be retrospective if they alter the law as it previously stood. The Tribunal also referred to the Supreme Court's judgment in CIT Vs. Vatika Township Pvt. Ltd., which emphasized that unless a contrary intention appears, legislation is presumed not to have retrospective operation.

Conclusion:

The Tribunal allowed the appeal, directing the AO to delete the disallowance of Rs. 96,110, as the amendment by the Finance Act, 2021, to Sections 36(1)(va) and 43B does not apply to the relevant assessment year (2018-2019). The Tribunal held that the appellant was entitled to the deduction of employees' contributions to provident fund and state insurance, as the payments were made before the due date for filing the return of income under Section 139(1).

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