2021 (12) TMI 587 - AT - Income Tax

Tribunal grants deduction for ESI/PF contributions, rules against retrospective amendments

Shri Kishan Dutt Sharma Versus The Assistant Director of Income tax (CPC) Bangalore

The Tribunal allowed the appeal, directing the Assessing Officer to grant the deduction for the employees' contribution to ESI and PF since the payment ... Addition being late remittance of employees’ contribution to PF and ESI under the respective Acts - as stated that the assessee had paid the employees’ contribution to PF and ESI prior to the due date of filing of the return u/s 139(1) - HELD THAT:- Bangalore Bench of the Tribunal in the case of M/s. Shakuntala Agarbathi Company [2021 (10) TMI 1196 - ITAT BANGALORE] by following the dictum laid down by the Hon’ble jurisdictional High Court in the case of Essae Teraoka Pvt. Ltd [2014 (3) TMI 386 - KARNATAKA HIGH COURT] had held that the assessee would be entitled to deduction of employees’ contribution to PF and ESI provided that the payments were made prior to the due date of filing of the return of income u/s 139(1) of the I.T.Act. Thus the amended provisions of section 43B as well as 36(1)(va) of the I.T.Act are not applicable for the assessment year under consideration. As further hold by following the binding judgment in the case of Essae Teraoka Pvt. Ltd Vs. DCIT (supra), the employees’ contribution paid by the assessee before the due date of filing of return of income u/s 139(1) of the I.T.Act is an allowable deduction - Decided in favour of assessee. Issues Involved:1. Validity of the appellate order passed by the Commissioner of Income-tax (Appeals), National Faceless Appeal Centre.2. Adjustment under section 143(1)(a) by CPC.3. Deductibility of employee's contribution to ESI and PF.4. Applicability of amendments to Section 36(1)(va) and Section 43B by Finance Act, 2021.5. Levy of interest under sections 234A, 234B, and 234C of the Income Tax Act.Detailed Analysis:1. Validity of the Appellate Order:The appellant contended that the Commissioner of Income-tax (Appeals) erred in passing the appellate order without adhering to binding decisions of the jurisdictional High Court and the Apex Court. The appellate order was claimed to be void-ab-initio and bad in law, thus liable to be quashed.2. Adjustment Under Section 143(1)(a) by CPC:The appellant argued that the adjustment made by CPC under section 143(1)(a) was beyond the purview of the section and not a prima facie adjustment. Consequently, the adjustment should have been deleted by the Commissioner of Income-tax (Appeals).3. Deductibility of Employee's Contribution to ESI and PF:The appellant paid the employees’ contribution to PF and ESI before the due date for filing the return under section 139(1). The appellant relied on the judgment of the jurisdictional High Court in Essae Teraoka Pvt. Ltd Vs. DCIT, which held that such contributions are deductible if paid before the due date for filing the return. The Commissioner of Income-tax (Appeals) dismissed this claim, relying on the amendments to section 43B and 36(1)(va) by Finance Act, 2021, which were considered clarificatory and retrospective.4. Applicability of Amendments to Section 36(1)(va) and Section 43B:The Tribunal referred to its earlier decision in M/s. Shakuntala Agarbathi Company Vs. DCIT, where it was held that the amendments to section 36(1)(va) and 43B by Finance Act, 2021, are not clarificatory and thus not retrospective. The Tribunal noted that the jurisdictional High Court had allowed deductions for contributions made before the due date for filing the return, and the amendments adversely altered the law, hence could not be considered retrospective.5. Levy of Interest Under Sections 234A, 234B, and 234C:The appellant denied liability for interest levied under sections 234A, 234B, and 234C, arguing that the interest levied was erroneous and should be deleted.Conclusion:The Tribunal allowed the appeal, directing the Assessing Officer to grant the deduction for the employees' contribution to ESI and PF since the payment was made before the due date for filing the return under section 139(1). The amendments to sections 36(1)(va) and 43B by Finance Act, 2021, were held not to be applicable retrospectively for the assessment year 2019-2020. The disallowance made by the Assessing Officer was deleted, and the interest levied under sections 234A, 234B, and 234C was also directed to be deleted.