Finance Act 2021: Tribunal Rules Amendment Prospective, Allows Employee Contributions

The tribunal held that the Finance Act, 2021 amendment disallowing employees' contributions to ESI & PF under section 36(1)(va) is prospective and does not apply to the assessment year 2018-19. As a result, the disallowance of contributions amounting to Rs. 89,57,978 was deleted, and the appeal of the assessee was allowed against the order of the Commissioner of Income Tax.

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Issues:
Disallowance of employees' contribution to ESI & PF under section 36(1)(va) of the Income Tax Act, 1961 for assessment year 2018-19.

Analysis:
The appeal was filed against the order of the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre confirming the disallowance of employees' contribution towards ESI & PF. The assessee argued that the contributions were made before the due date of filing the return of income under section 139(1) of the Act. They relied on various court decisions to support their claim. The Ld. CIT(A) upheld the disallowance based on the Finance Act, 2021 amendment introducing Explanation-5 to section 36(1)(va). The assessee contended that this amendment should be prospective and not retrospective, citing consistent tribunal decisions. The tribunal noted divergent views of different High Courts but emphasized following the jurisdictional Punjab & Haryana High Court's decisions. It held that the Finance Act, 2021 amendment applies from assessment year 2021-22 onwards and cannot be applied to the assessment year 2018-19. Consequently, the disallowance of employees' contributions amounting to Rs. 89,57,978 made by the CPC was directed to be deleted, and the appeal of the assessee was allowed.

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