2022 (2) TMI 428 - AT - Income Tax

Tribunal grants deductions for employees' ESI contributions in favor of assessee

M/s Hi Q Design and Detailing Private Limited Versus The Assistant Director of Income Tax, CPC, Bangalore

The Tribunal allowed the appeals, ruling in favor of the assessee, and directed the Assessing Officer to grant deductions for employees' contribution to ... Deduction of employees' contribution to PF and ESI provided that the payments were made prior to the due date of filing of the return of income u/s. 139(1) - amended provisions of section 43B as well as 36(1)(va) - HELD THAT:- As in Bangalore Bench of the Tribunal in the case of M/s. Shakuntala Agarbathi Company [2021 (10) TMI 1196 - ITAT BANGALORE] by following the dictum laid down in the case of Essae Teraoka Pvt. Ltd Vs. DCIT [2014 (3) TMI 386 - KARNATAKA HIGH COURT]held that the assessee would be entitled to deduction of employees’ contribution to PF and ESI provided that the payments were made prior to the due date of filing of the return of income u/s 139(1) - Also further held by the ITAT that amendment by Finance Act, 2021, to section 36[1][va] and 43B of the Act is not clarificatory. Therefore, the amended provisions of section 43B as well as 36(1)(va) of the I.T.Act are not applicable for the assessment years under consideration. By following the binding decision in the case of Essae Teraoka Pvt. Ltd Vs. DCIT (supra), the employees’ contribution paid by the assessee before the due date of filing of return of income u/s 139(1) is an allowable deduction - Decided in favour of assessee. Issues:Appeals against CIT(A) orders for assessment years 2018-2019 and 2019-2020 regarding disallowance of employees' contribution to PF and ESI under sections 36(1)(va) and 43B of the Income Tax Act.Analysis:1. The appeals challenged the CIT(A) orders disallowing deductions for late remittance of employees' contribution to PF and ESI. The CIT(A) held that only the employer's contribution is deductible under section 43B if paid before the due date of filing the return. The Finance Act, 2021 amendments were deemed clarificatory and retrospective.2. The Tribunal considered the precedent set by the jurisdictional High Court in Essae Teraoka Pvt. Ltd. v. DCIT, where it was held that employees' contribution to PF and ESI is deductible if paid before the due date of filing the return. The Tribunal noted that the Finance Act, 2021 amendments were not clarificatory and adversely affected the assessee, making them non-retrospective.3. The Tribunal relied on the Supreme Court's judgment in M.M. Aqua Technologies Limited v. CIT, stating that retrospective provisions for removing doubts cannot be presumed as retrospective if they alter existing laws. The Tribunal referenced several orders affirming that the Finance Act, 2021 amendments were prospective and not retrospective.4. Ultimately, the Tribunal held that the amended provisions of section 43B and 36(1)(va) were not applicable for the assessment years in question. Following the Essae Teraoka Pvt. Ltd. case, the employees' contribution paid before the due date of filing the return was deemed an allowable deduction, leading to the deletion of the disallowance made by the Assessing Officer.5. Consequently, the appeals were allowed in favor of the assessee, directing the Assessing Officer to grant deductions for employees' contribution to ESI due to timely payment before the return filing deadline.This detailed analysis showcases how the Tribunal interpreted the law, precedent, and amendments to determine the deductibility of employees' contributions to PF and ESI, ultimately ruling in favor of the assessee based on established legal principles and judicial decisions.