2021 (12) TMI 747 - AT - Income Tax

Finance Act 2021: Amendments to Income Tax Act Applied Prospectively

M/s. Navrathan Jewellers Pvt. Ltd. Versus The Assistant Director of Income Tax, CPC, Bengaluru.

The Court held that the amendments made by the Finance Act, 2021 to sections 36(1)(va) and 43B of the Income Tax Act should be applied prospectively from ... Delayed employee’s contribution - Disallowance u/s 36(1)(va) r.w.s 43B - whether the amendment to the provisions to section 43B and 36(1)(va) of the Act by the Finance Act, 2021, has to be construed as retrospective and applicable for the period prior to 01.04.2021 also? - HELD THAT:- As in the case of Essae Teraoka Pvt. Ltd. [2014 (3) TMI 386 - KARNATAKA HIGH COURT] has taken the view that employee’s contribution u/s 36(1)(va) of the Act would also be covered under section 43B of the Act and therefore if the share of the employee’s share of contribution is made on or before due date for furnishing the return of income under section 139(1) of the Act, then the assessee would be entitled to claim deduction. Therefore, the issue is decided in favour of the Assessee. Scope of amendment - The explanatory memorandum to the Finance Act, 2021 proposing amendment in section 36(1)(va) as well as section 43B is applicable only from 01.04.2021. These provisions impose a liability on an assessee and therefore cannot be construed as applicable with retrospective effect unless the legislature specifically says so - the aforesaid amendment is applicable only prospectively i.e., from 1.4.2021. We are therefore of the view that the impugned additions made under section 36(1)(va) of the Act deserves to be deleted. - Decided in favour of assessee. Issues:1. Interpretation of section 36(1)(va) and section 43B of the Income Tax Act 1961.2. Applicability of the amendments made by the Finance Act, 2021 to the provisions of section 36(1)(va) and section 43B.3. Retrospective effect of the amendments to section 36(1)(va) and section 43B.Issue 1: Interpretation of section 36(1)(va) and section 43B of the Income Tax Act 1961:The appellant, a Private Limited Company engaged in Jewellery business, filed an appeal against the order of the Centralized Processing Centre (CPC) regarding the addition of income representing employees' share of contribution to Provident Fund (PF) & Employees State Insurance (ESI). The appellant contended that the contribution was paid before the due date for filing the return, citing relevant judicial decisions. The CIT(A) differentiated between employees' and employer's contributions, noting that failure to pay employees' contribution on time negates the employer's deduction permanently, while delay in employer's contribution leads to deferment of deduction. The CIT(A) referenced judicial pronouncements recognizing this distinction and upheld the CPC's order.Issue 2: Applicability of the amendments made by the Finance Act, 2021 to the provisions of section 36(1)(va) and section 43B:The Finance Act, 2021 inserted Explanation-2 to section 36(1)(va) and Explanation-5 to section 43B, clarifying that the provisions of section 43B shall not apply for determining the 'due date' under section 36(1)(va). The CIT(A) considered these amendments as declaratory/clarificatory in nature and applicable with retrospective effect. However, the appellant challenged this interpretation, arguing that the amendments should not be applied retrospectively. The Tribunal reviewed similar issues in various judicial decisions and concluded that the amendments should be applied prospectively from 01.04.2021. Consequently, the impugned additions made under section 36(1)(va) were deemed to be deleted, and the appellant's appeal was allowed.Issue 3: Retrospective effect of the amendments to section 36(1)(va) and section 43B:The Tribunal, after considering the explanatory memorandum to the Finance Act, 2021, noted that the proposed amendments were applicable only from 01.04.2021. The Tribunal emphasized that provisions imposing a liability on an assessee cannot be construed as applicable with retrospective effect unless expressly stated by the legislature. Relying on previous tribunal decisions, the Tribunal held that the amendments should apply prospectively from 01.04.2021, leading to the deletion of the impugned additions under section 36(1)(va) and allowing the appellant's appeal.This detailed analysis of the judgment provides insights into the interpretation of relevant sections of the Income Tax Act, the applicability of recent amendments, and the determination of retrospective effect, culminating in the allowance of the appellant's appeal based on the prospective application of the amendments.