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The appeal filed by the assessee challenges the order of the Commissioner of Income Tax (Appeals) (CIT(A)), National Faceless Appeal Centre (NFAC), Delhi, dated 25.10.2021, which confirmed the disallowance of Rs. 40,49,147/- made by the Assessing Officer (AO) on account of delayed payment of employees' contributions to PF and ESI. 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.
The Tribunal observed that a similar issue was involved in the case of Lumino Industries Limited, where the Tribunal had passed a well-reasoned order on 17th November 2021. In that case, the AO had disallowed the payment based on CBDT Circular No. 22/2015 and judicial pronouncements that contributions should be deposited within the due dates prescribed under the respective Acts (PF and ESI Act), not just before the due date of filing the return of income. The CIT(A) upheld this disallowance, citing a clarificatory amendment by the Finance Act, 2021, which was deemed retrospective.
The assessee's representative argued that the amendment by the Finance Act, 2021, is prospective, not retrospective, citing the Supreme Court's decision in M/s. M.M. Aqua Technologies Ltd. vs. CIT, Delhi, which stated that a retrospective provision in a tax act cannot be presumed to be retrospective if it alters the law. The representative also referred to the Constitution Bench decision in CIT vs. Vatika Township Pvt. Ltd., which emphasized the need to look at the legislative intent to determine whether an amendment is retrospective or prospective.
The Tribunal noted that the Finance Bill, 2021, explicitly stated that the amendments would take effect from 1st April 2021 and apply to the assessment year 2021-22 and subsequent years. Therefore, the amendment is prospective, and the jurisdictional Calcutta High Court's decisions, which allowed deductions for contributions made before the due date of filing the return, are binding for the assessment year under consideration.
The Tribunal also considered conflicting decisions from different High Courts and noted that when there is a conflict, the decision in favor of the assessee should be followed, as held by the Supreme Court in the case of Vegetable Products Ltd. The Tribunal concluded that the amendment brought by the Finance Act, 2021, is prospective, and the assessee's claim should be allowed based on the jurisdictional High Court's decisions.
Consequently, the Tribunal set aside the CIT(A)'s order and directed the AO to allow the deduction for employees' contributions to PF and ESI paid before the due date of filing the return under section 139(1) of the Act. The appeal of the assessee was allowed.
Order pronounced in the open Court on December 14, 2021.
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