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

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 employees' contribution to PF/ESI on time. The ITAT held that the amendment to the relevant sections applied prospectively from the assessment year 2021-22 onwards. Therefore, the claim of employees' contribution could not be denied for the year 2019-20 based on the 2021 amendment. The Assessing Officer was directed to allow the claim of the assessee, and the appeal was pronounced in favor of the assessee on 27th August 2021.

---

---

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.

---