Timely provident fund and ESI payments remain deductible; Finance Act, 2021 amendments operate prospectively.

Employees' contribution to provident fund and ESI is treated as deductible where the payment is made before the due date for filing the return under section 139(1), following the jurisdictional High Court view in Essae Teraoka. The Finance Act, 2021 amendments to sections 36(1)(va) and 43B are not clarificatory and do not apply retrospectively, because an amendment that imposes an adverse tax consequence is ordinarily prospective unless expressly stated otherwise. The practical effect is that, for the relevant assessment year, such timely remittances remain allowable and disallowance is not sustained.

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Issues: Whether employees' contribution to provident fund and ESI, paid before the due date for filing the return under section 139(1), is allowable as a deduction for assessment year 2019-20, and whether the Finance Act, 2021 amendments to sections 36(1)(va) and 43B apply retrospectively.

Analysis: The assessee had remitted the employees' contribution before the due date for filing the return. The jurisdictional High Court decision in Essae Teraoka was applied to hold that such payment is deductible if made within the due date under section 139(1). The Tribunal also held that the amendment introduced by the Finance Act, 2021 to section 36(1)(va) and section 43B alters the existing legal position and therefore cannot be treated as clarificatory or retrospective. The reasoning was supported by the principle that taxing amendments imposing an adverse change are ordinarily prospective unless expressly made retrospective.

Conclusion: The issue was decided in favour of the assessee. The disallowance of employees' contribution to provident fund and ESI was deleted, and the amended provisions were held inapplicable to the assessment year under consideration.

Ratio Decidendi: Employees' contribution to provident fund and ESI, if deposited before the due date for filing the return under section 139(1), remains allowable for the relevant assessment year, and the Finance Act, 2021 amendments to sections 36(1)(va) and 43B operate prospectively.

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