Tribunal: Deduction for ESI contributions made before filing return allowed

The Tribunal held that the amendments to Section 36(1)(va) and 43B by the Finance Act, 2021, are prospective and do not apply to the assessment year 2019-2020. Consequently, employees' contributions paid before the due date of filing the return under Section 139(1) are deductible. The appeal by the assessee was allowed, the disallowance by the AO was overturned, and the AO was directed to allow the deduction for employees' contribution to ESI made before the due date of filing the return.

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Issues Involved:
1. Jurisdiction and legality of the CIT(A)'s order.
2. Disallowance of employees' contribution to provident fund and employees' state insurance.
3. Applicability of Section 36(1)(va) and Section 43B of the Income Tax Act, 1961.
4. Retrospective application of amendments made by the Finance Act, 2021.

Detailed Analysis:

1. Jurisdiction and Legality of the CIT(A)'s Order:
The assessee challenged the jurisdiction and legality of the CIT(A)'s order dated 19.08.2021, arguing that it was opposed to law, without jurisdiction, and contrary to the facts and circumstances of the case. The CIT(A) upheld the disallowance made by the Assessing Officer (AO) regarding the late remittance of employees’ contribution to PF and ESI, which was contested by the assessee.

2. Disallowance of Employees' Contribution to Provident Fund and Employees' State Insurance:
The AO disallowed Rs. 4,33,873 on account of late remittance of employees’ contribution to PF and ESI, despite the assessee's claim that these contributions were paid before the due date of filing the return under Section 139(1) of the Act. The CIT(A) upheld this disallowance, differentiating between employer’s and employees’ contributions, and concluded that only the employer’s contribution is entitled to deduction under Section 43B if paid before the due date of filing the return.

3. Applicability of Section 36(1)(va) and Section 43B of the Income Tax Act, 1961:
The assessee argued that the provisions of Section 30 and Section 32 of the Employees' Provident Fund Scheme, 1952, should apply, which mandate the employer to remit both employer's and employees' contributions. The Tribunal referenced the Karnataka High Court’s decision in Essae Teraoka Pvt. Ltd Vs. DCIT, which held that employees' contributions paid before the due date of filing the return are deductible. The Tribunal also cited its own decision in M/s. Shakuntala Agarbathi Company Vs. DCIT, affirming that the amendment by the Finance Act, 2021, to Section 36(1)(va) and 43B is not clarificatory and thus not applicable retrospectively.

4. Retrospective Application of Amendments by Finance Act, 2021:
The CIT(A) relied on the Supreme Court’s judgment in CIT Vs. Gold Coin Health Food Pvt. Ltd., to argue that the amendments to Section 36(1)(va) and 43B were clarificatory and retrospective. However, the Tribunal distinguished this case, noting that the Supreme Court’s decision in Gold Coin Health Food was about penalty imposition and not about contribution deductions. The Tribunal emphasized that the amendments by the Finance Act, 2021, were prospective, effective from 01.04.2021, and thus not applicable to the assessment year 2019-2020. The Tribunal cited multiple decisions, including those from the Jaipur and Hyderabad Tribunals, supporting this view.

Conclusion:
The Tribunal concluded that the amendments to Section 36(1)(va) and 43B by the Finance Act, 2021, are prospective and do not apply to the assessment year 2019-2020. Therefore, the employees' contributions paid before the due date of filing the return under Section 139(1) are deductible. The appeal filed by the assessee was allowed, and the disallowance made by the AO was deleted. The Tribunal ordered the AO to grant the deduction for the employees' contribution to ESI, as the payment was made before the due date of filing the return.

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