Finance Act 2021: Tax Amendments Applied Prospectively

The Tribunal held that the amendments made by the Finance Act, 2021 to sections 36(1)(va) and 43B of the Income Tax Act, 1961 were prospective in nature from 01.04.2021 and not applicable retrospectively. As a result, the additions made under section 36(1)(va) for the Assessment Years 2018-19 and 2019-20 were deleted, allowing the appeals of the assessee and dismissing the stay petitions as infructuous.

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Issues:
1. Disallowance of employee's share of contribution to PF/ESI by CPC in intimation under section 143(1) of the Income Tax Act, 1961.
2. CIT(A) upholding the disallowance and referring to amendments made by the Finance Act, 2021 to sections 36(1)(va) and 43B of the Act.
3. Legal distinction between employees' and employer's contributions under the Act.
4. Applicability of the amendments made by the Finance Act, 2021 with retrospective effect.
5. Interpretation of the Karnataka High Court's decision regarding employee's contribution under section 36(1)(va) and section 43B of the Act.
6. Tribunal's view on the prospective application of the amendments.

Analysis:
1. The appeals and stay petitions were filed by the assessee against two orders of CIT(A) relating to Assessment Years 2018-19 and 2019-20, disputing the disallowance of employee's share of contribution to PF/ESI by CPC in the intimation under section 143(1) of the Act.
2. The CIT(A) upheld the disallowance, citing amendments made by the Finance Act, 2021 to sections 36(1)(va) and 43B of the Act, emphasizing the due dates for payment of employee's and employer's contributions and the consequences of delay in payment.
3. The legal distinction between employees' and employer's contributions under the Act was highlighted, indicating that failure to pay employee's contribution before the prescribed due date negates the employer's deduction permanently, while delay in employer's contribution payment leads to deferment of deduction under section 43B.
4. The CIT(A) deemed the amendments by the Finance Act, 2021 as declaratory/clarificatory in nature, applying retrospectively by necessary intendment of deeming nature expressly stated therein.
5. The Karnataka High Court's decision on employee's contribution under section 36(1)(va) and section 43B was considered, concluding that the amendments by the Finance Act, 2021 were prospective from 01.04.2021 and not applicable retrospectively.
6. The Tribunal concurred with the view that the amendments were prospective, leading to the deletion of the additions made under section 36(1)(va) for both Assessment Years, ultimately allowing the appeals of the assessee and dismissing the stay petitions as infructuous.

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