2021 (12) TMI 1170 - AT - Income Tax

Appeal success: Amendment not retroactive, deduction upheld for employees' contributions

The Tribunal allowed the appeal, holding that the amendment to Section 36(1)(va) and Section 43B by the Finance Act, 2021, is prospective and does not ... Delayed payment of employees contribution to PF and ESI paid after the due dates prescribed in the relevant Statutes but before the due date of filing of return under section 139(1) - HELD THAT:- As a similar issue relating to the disallowance on account of delayed payment of employees contribution towards PF and ESI was involved in the case of Lumino Industries Limited [2021 (11) TMI 926 - ITAT KOLKATA] and after considering the relevant provisions of the Income Tax Act as amended from time to time as well as the relevant judicial pronouncements on the issue, this Tribunal allow the claim of deduction in respect of employees contribution shares towards ESI, PF, by the assessee before the due date of filing of return u/s. 139(1) - Decided in favour of assessee. Issues Involved:1. Disallowance of employees' contribution to PF and ESI due to delayed payment.2. Retrospective vs. prospective application of the amendment brought by Finance Act, 2021 to Section 36(1)(va) and Section 43B of the Income Tax Act, 1961.Detailed Analysis:1. Disallowance of Employees' Contribution to PF and ESI:The primary issue in this appeal is the disallowance of employees' contribution to Provident Fund (PF) and Employees' State Insurance (ESI) due to delayed payment. The authorities below disallowed the contributions as they were not remitted within the due date prescribed by the respective Acts. However, the assessee argued that since the remittance was made before the filing of the return of income under Section 139 of the Income Tax Act, no disallowance is warranted.The Assessing Officer (AO) disallowed the sum based on Section 2(24)(x) read with Section 36(1)(va) of the Act, supported by the decision of the Hon'ble Gujarat High Court in the case of CIT vs. Gujarat State Road Transport Corporation and the ITAT Mumbai decision in the case of LKP Securities Ltd. The AO also cited CBDT Circular No. 22/2015 dated 17.12.2015.The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, emphasizing the distinction between Section 43B and Section 36(1)(va) and referring to the amendment brought by Finance Act, 2021, which clarified that Section 43B does not apply to Section 36(1)(va).2. Retrospective vs. Prospective Application of the Amendment:The crux of the dispute is whether the amendment brought by Finance Act, 2021, to Section 36(1)(va) and Section 43B is retrospective or prospective. The assessee contended that the amendment is prospective and should apply from Assessment Year (AY) 2021-22 onwards, citing the decision of the Hon'ble Supreme Court in the case of M/s. M.M. Aqua Technologies Ltd. vs. CIT, Delhi, which held that a retrospective provision in a tax act cannot be presumed to be retrospective if it alters or changes the law as it earlier stood.The Tribunal referred to the 'Notes on Clauses' appended to the Finance Bill, 2021, which explicitly stated that the amendments would take effect from 1st April 2021 and apply to AY 2021-22 and subsequent years. The Tribunal also noted that the Hon'ble Jurisdictional Calcutta High Court had previously held that payments made before the due date of filing the return of income under Section 139(1) are allowable as deductions.The Tribunal concluded that the amendment brought by Finance Act, 2021, is prospective and not retrospective. Therefore, the disallowance made by the AO and upheld by the CIT(A) was incorrect for the assessment year under consideration (AY 2019-20).Conclusion:The Tribunal allowed the appeal of the assessee, directing the AO to delete the addition and hold that the amendment brought by Finance Act, 2021, is prospective in nature and would apply from AY 2021-22 onwards. Consequently, the disallowance of employees' contribution to PF and ESI for AY 2019-20 was not warranted, and the assessee's claim for deduction was upheld. The appeal was allowed in favor of the assessee.