2022 (3) TMI 657 - AT - Income Tax

Appeal allowed as amended tax provisions apply prospectively

The Etikoppaka Co-operative Agricultural Industrial Society Ltd. Versus ACIT, Circle-2 (1), Visakhapatnam.

The Tribunal allowed the appeal, ruling that the amended provisions of Section 36(1)(va) introduced by the Finance Act, 2021, apply prospectively from the ... Delayed payment of employees contribution in regard to PF & ESI - Payment before the due date of filing of return of income u/s.139(1) - scope of amendment in provisions of Section 36(1)(va) by inserting the Explanation 2 r.w.s. 43B - HELD THAT:- There are series of decisions of various High Courts on this issue and the Hon’ble Madras High Court in the case of M/s. Industrial Security & Intelligence India P Ltd. [2015 (7) TMI 1063 - MADRAS HIGH COURT] held that the payment of employees contribution in regard to PF & ESI if made before the due date of filing of return of income u/s.139(1) of the Act, the same is allowable as deduction as per the provisions of Section 2(24)(x) r.w.s. 36(1)(va) r.w.s. 43B of the Act. As before insertion of Explanation 2 to Section 36(1)(va) of the Act, there is ambiguity regarding due date of payment of employees‟ contribution on account of provident fund and ESI, whether the due date is as per the respective acts or up to the due date of filing of return of income of the assessee. As noted by Hon’ble Supreme Court an amendment made to a taxing statute can be said to be intended to remove hardship only of the assessee and not of the Department. Imposing of a retrospective levy on the assessee would be caused undue hardship and for that reason Parliament specifically chose to make the proviso affective from a particular date. In the present case also, the amendment brought out by Finance Act, 2021 w.e.f. 01.04.2021 i.e. for and from assessment year 2021-22 of Explanation-2 to s. 36(1)(va) of the Act and not retrospectively. It is clear that the amendment brought in the statute i.e., by Finance Act, 2021, the provisions of Section 36(1)(va) r.w.s. 43B of the Act amended by inserting Explanation 2 is prospective and not retrospective. Hence, the amended provisions of Section 43B r.w.s. 36(1)(va) of the Act are not applicable for the assessment year 2018-19 but will apply from assessment year 2021-22 and subsequent assessment years. Hence, this issue of assessee‟s appeal is allowed. Issues Involved:1. Disallowance of Employees' Contribution to PF & ESI under Section 36(1)(va) read with Section 43B.2. Retrospective vs. Prospective Applicability of the Amended Provisions of Section 36(1)(va) by Finance Act, 2021.Detailed Analysis:1. Disallowance of Employees' Contribution to PF & ESI under Section 36(1)(va) read with Section 43B:The assessee filed an appeal against the order of the Commissioner of Income Tax (Appeals) [CIT(A)], which sustained the disallowance of Rs. 60,34,059/- towards the delayed remittance of employees' contribution to Provident Fund (PF) and Employees' State Insurance (ESI). The Assessing Officer (AO) disallowed the amount based on the amended provisions of Section 36(1)(va) read with Section 43B of the Income Tax Act, treating the payments made beyond the due dates prescribed under the respective Acts but before the due date of filing the return of income under Section 139(1).The CIT(A) upheld the AO's decision, stating that the payment of employees' contribution made after the due date prescribed under the respective Acts is liable to be added to the income of the assessee. The assessee argued that the disallowance was outside the scope of Section 143(1) and that the contributions were remitted before the due date of filing the return of income under Section 139(1).2. Retrospective vs. Prospective Applicability of the Amended Provisions of Section 36(1)(va) by Finance Act, 2021:The core issue revolved around whether the amendment to Section 36(1)(va) by the Finance Act, 2021, which inserted Explanation 2, should be applied retrospectively or prospectively. The assessee contended that the amendment should be construed as prospective, applicable from 01.04.2021, i.e., for the assessment year 2021-22 and onwards.The Tribunal noted that various High Courts, including the Hon'ble Madras High Court in the case of M/s. Industrial Security and Intelligence India P Ltd., have held that if the employees' contribution is deposited before the due date of filing the return of income under Section 139(1), it should be allowed as a deduction. The Tribunal also referred to the Hon'ble Supreme Court's decision in CIT vs. Vatika Township Pvt. Ltd., which emphasized that unless a contrary intention appears, legislation is presumed not to have retrospective operation. The Supreme Court held that amendments to a taxing statute that impose a retrospective levy cause undue hardship to the assessee and should be construed as prospective unless explicitly stated otherwise.The Tribunal observed that the memorandum explaining the provisions of the Finance Act, 2021, clearly intended the amendment to take effect from 01.04.2021 and apply to assessment year 2021-22 and subsequent years. The Tribunal concluded that the amendment to Section 36(1)(va) by inserting Explanation 2 is prospective and not retrospective.Conclusion:The Tribunal allowed the appeal of the assessee, holding that the amended provisions of Section 36(1)(va) read with Section 43B, introduced by the Finance Act, 2021, are applicable prospectively from the assessment year 2021-22 and not retrospectively. Therefore, the disallowance of Rs. 60,34,059/- for the assessment year 2017-18 was not justified. The order was pronounced in open court on March 09, 2022.