2021 (11) TMI 761 - AT - Income Tax

ITAT rules in favor of taxpayer on employees' contribution denial based on retrospective amendment

M/s Jupiter Aqua Lines Pvt. Ltd. Versus The D.C.I.T., Circle-6 (1), Mohali.

The ITAT allowed the appeal, setting aside the order upholding the disallowance of the adjustment made to the return of income for failure to deposit ... Failure to deposit the employees’ contribution to PF/ESI for having not paid the same on or before the prescribed due dates as per section u/s 36(1)(va) - addition made in the intimation made to the assessee u/s 143(1) - Scope of amendment to section 36(1)(va) and u/s 43B - HELD THAT:- We find that this issue has already been decided in INSTA EXHIBITIONS PVT. LTD [2021 (8) TMI 1235 - ITAT DELHI] AND M/S CRESCENT ROADWAYS PRIVATE LIMITED. [2021 (7) TMI 1265 - ITAT HYDERABAD] holding that the amendment to section 36(1)(va) and u/s 43B of the Act effected by the Finance Act 2021 is applicable prospectively ,reading from the Notes on Clauses at the time of introduction of the Finance Act, 2021, specifically stating the amendment being applicable in relation to assessment year 2021-22 and subsequent years. Therefore the addition, we hold, cannot be made on the strength of the amendment effected by Finance Act 2021 to section 36(1)(va)/43B. Also it is an admitted position that the jurisdictional High Court has in various decisions held that employees contribution to ESI & PF is allowable if paid by the due date of filing return of income u/s 139(1) - we hold that the claim of employees contribution to ESI and PF as per section 36(1)(va) of the Act cannot be denied in the impugned year, i.e. 2019-20 on the basis of amendment made to the section by Finance Act 2021. The order of the Ld.CIT(A) upholding the said disallowance is therefore set aside and the AO is directed to allow the claim of the assessee. - Decided in favour of assessee. Issues Involved:Adjustment made to return of income for failure to deposit employees' contribution to PF/ESI within prescribed due dates.Analysis:The appeal was filed against the order of the Commissioner of Income Tax (Appeals) related to assessment years 2019-20. The main issue was the adjustment made to the return of income for not depositing employees' contribution to PF/ESI on time. The assessee contended that although the contributions were paid after the due dates under the respective Acts, they were paid before the due date of filing the return of income under section 139(1) of the Income Tax Act, which should allow for deduction. The Revenue Authorities made the adjustment based on the amendment to section 36(1)(va) and section 43B of the Act, stating that the due date for payment of employers' contribution would not apply to the allowability of employees' contribution. The Revenue argued that the amendment was clarificatory and retrospective.The ITAT referred to similar cases decided by other benches, where it was held that the amendment by the Finance Act 2021 applied prospectively from assessment year 2021-22 onwards. The ITAT also noted that the jurisdictional High Court had previously allowed employees' contribution to ESI and PF if paid by the due date of filing the return of income under section 139(1) of the Act. Citing specific cases where this was upheld, the ITAT concluded that the claim of employees' contribution as per section 36(1)(va) could not be denied for the year 2019-20 based on the 2021 amendment. Therefore, the order upholding the disallowance was set aside, and the Assessing Officer was directed to allow the claim of the assessee. The appeal of the assessee was allowed, and the order was pronounced on 27th August 2021.