2021 (12) TMI 749 - AT - Income Tax

Finance Act 2021: Tribunal rules on PF & ESI deductions

The Tribunal held that the amendments to Section 36(1)(va) and Section 43B by Finance Act, 2021, are not retrospective. It allowed the deduction of ... Late remittance of employees’ contribution to PF and ESI - As contended that assessee has paid the employees’ contribution prior to the due date of filing of return under section 139(1) - Scope of amendment - HELD THAT:- On identical facts, the Bangalore Bench of the Tribunal in the case of M/s. Shakuntala Agarbathi Company Vs. DCIT [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. It was further held by the ITAT that amendment by Finance Act, 2021, to section 36[1][va] and 43B of the Act is not clarificatory. As amended provisions of section 43B as well as 36(1)(va) of the I.T.Act are not applicable for the assessment years under consideration. By following the binding decision of the Hon’ble jurisdictional High Court 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. Accordingly, we decide this issue in favour of the assessee. Issues Involved:1. Justification of disallowance under Section 36(1)(va) of the Income Tax Act.2. Retrospective application of amendments to Section 36(1)(va) and Section 43B by Finance Act, 2021.3. Applicability of interest under Sections 234B and 234C of the Income Tax Act.Issue-wise Detailed Analysis:1. Justification of Disallowance under Section 36(1)(va) of the Income Tax Act:The appeals concern the disallowance of employees' contributions to PF and ESI due to delayed remittance. The appellant argued that the contributions were paid before the due date for filing the return under Section 139(1) of the Act, thereby qualifying for deduction under Section 43B. The appellant relied on the Karnataka High Court's judgment in Essae Teraoka Pvt. Ltd. Vs. DCIT, which allowed such deductions if the payments were made before the due date for filing the return. The CIT(A) upheld the disallowance, citing the amendments by Finance Act, 2021, which were considered clarificatory and thus retrospective.2. Retrospective Application of Amendments to Section 36(1)(va) and Section 43B by Finance Act, 2021:The Tribunal examined whether the amendments to Section 36(1)(va) and Section 43B by Finance Act, 2021, were retrospective. The CIT(A) had relied on the Supreme Court's judgment in CIT Vs. Gold Coin Health Food Pvt. Ltd. to argue that the amendments were clarificatory. However, the Tribunal noted that the amendments altered the law adversely to the assessee and were not merely clarificatory. The Tribunal referenced the Supreme Court's judgment in M.M. Aqua Technologies Limited v. CIT, which held that retrospective provisions in taxing acts should not be presumed if they alter the law. The Tribunal also cited several decisions, including the Constitution Bench judgment in CIT Vs. Vatika Township [P] Ltd., which emphasized that amendments imposing new obligations should be prospective unless explicitly stated otherwise.3. Applicability of Interest under Sections 234B and 234C of the Income Tax Act:The appellant denied liability for interest under Sections 234B and 234C, arguing that the disallowance was unjustified. The Tribunal, having decided in favor of the appellant on the primary issue of disallowance, implicitly addressed the interest issue by deleting the disallowance.Conclusion:The Tribunal concluded that the amendments to Section 36(1)(va) and Section 43B by Finance Act, 2021, are not retrospective. It upheld the Karnataka High Court's judgment in Essae Teraoka Pvt. Ltd. Vs. DCIT, allowing the deduction of employees' contributions to PF and ESI if paid before the due date for filing the return. Consequently, the disallowance made by the Assessing Officer was deleted, and the appeals were allowed. The Tribunal directed the A.O. to grant the deduction and ruled that the amendments would apply prospectively from the assessment year 2021-2022 onwards.