2021 (12) TMI 1030 - AT - Income Tax

Tribunal: Finance Act 2021 Amendment Prospective, Deductions Allowed for Timely Payments

Kingfisher Products Pvt. Limited Versus Deputy Commissioner of Income Tax, Circle-7 (1) Kolkata And Kingfisher Products Pvt. Limited Versus Assistant Director of Income Tax, Central ized Processing Centre Kolkata

Kingfisher Products Pvt. Limited Versus Deputy Commissioner of Income Tax, Circle-7 (1) Kolkata And Kingfisher Products Pvt. Limited Versus Assistant ... Issues Involved:Disallowance of delayed payment of employees' contribution to PF and ESI under Section 36(1)(va) and Section 43B of the Income Tax Act, 1961.Detailed Analysis:1. Background and Context:The appeals concern disallowances made by the Assessing Officer (AO) and confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)] regarding delayed payments of employees' contributions to Provident Fund (PF) and Employee State Insurance (ESI) for the assessment years 2017-18, 2018-19, and 2019-20. The payments were made after the due dates prescribed in the relevant statutes but before the due date of filing the return under Section 139(1) of the Income Tax Act, 1961.2. Tribunal's Observations and Precedents:The Tribunal observed that a similar issue was previously adjudicated in the case of Lumino Industries Limited. The Tribunal had decided in favor of the assessee, stating that payments made before the due date of filing the return under Section 139(1) are allowable deductions. The AO had disallowed the payments based on CBDT Circular No. 22/2015 and judicial precedents from the Hon'ble Gujarat High Court and ITAT Mumbai, which held that employees' contributions can only be allowed if deposited within the due date prescribed under the respective Acts.3. Arguments by the Appellant:The appellant argued that the amendment brought by the Finance Act, 2021, which clarifies that Section 43B does not apply to Section 36(1)(va), is prospective and not retrospective. They cited the Hon'ble Supreme Court's decision in the case of M/s. M.M. Aqua Technologies Ltd. vs. CIT, which held that a provision cannot be presumed to be retrospective if it changes the law as it previously stood. The appellant also referred to the Constitution Bench decision in CIT vs. Vatika Township Pvt. Ltd., which emphasized that legislative intent, as discerned from the 'Notes on Clauses' of the Finance Bill, determines whether an amendment is retrospective or prospective.4. Legislative Intent and Notes on Clauses:The 'Notes on Clauses' of the Finance Act, 2021, explicitly state that the amendments will take effect from April 1, 2021, and will apply to the assessment year 2021-22 and subsequent years. This indicates that the amendments are prospective.5. Jurisprudence and Binding Precedents:The appellant cited several decisions from the Hon'ble Calcutta High Court, including CIT vs. M/s. Vijayshree Ltd., which held that employees' contributions made before the due date of filing the return under Section 139(1) are allowable deductions. The appellant also highlighted that the Hon'ble Delhi High Court's decision in CIT vs. Bharat Hotel Ltd., which favored the revenue, did not consider the earlier Division Bench judgment in CIT vs. Aimil Ltd., which favored the assessee.6. Tribunal's Conclusion:The Tribunal concluded that the amendment brought by the Finance Act, 2021, is prospective and not retrospective. It held that the jurisdictional High Court's decisions, which allowed deductions for payments made before the due date of filing the return, are binding. Consequently, the Tribunal set aside the orders of the CIT(A) and directed the AO to allow the deductions for the employees' contributions towards PF and ESI made before the due date of filing the return under Section 139(1).7. Final Decision:The appeals of the assessee were allowed, and the disallowances made by the AO and confirmed by the CIT(A) were deleted.Order Pronouncement:The order was pronounced in the open Court on December 10, 2021.