Tribunal directs deletion of Rs. 29,52,674 addition under Section 36(1)(va)

The Tribunal set aside the CIT(A)'s order and directed the AO to delete the Rs. 29,52,674/- addition under Section 36(1)(va) of the Income Tax Act. The Tribunal did not address the retrospective or prospective nature of the amendments by the Finance Act, 2021, as it became moot following the deletion of the addition. The appeal was partly allowed for statistical purposes, with the order pronounced on 24.05.2022.

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Issues Involved:
1. Sustaining the addition of Rs. 29,52,674/- under Section 36(1)(va) of the Income Tax Act.
2. Whether the amendments to Section 36(1)(va) and Section 43B by the Finance Act, 2021 are retrospective or prospective in nature.
3. Legality of adjustments made under Section 143(1) of the Income Tax Act on debatable and controversial issues.

Detailed Analysis:

Issue 1: Sustaining the Addition of Rs. 29,52,674/- under Section 36(1)(va)

The primary issue in the appeal was the addition of Rs. 29,52,674/- made by the Assessing Officer (AO) under Section 36(1)(va) of the Income Tax Act for the late deposit of employees' contributions to ESI/Provident Fund. The assessee deposited these contributions after the specified date under the relevant laws but before the due date for filing the return of income under Section 139(1) of the Income Tax Act. The AO made this addition by way of adjustments under Section 143(1) vide intimation dated 14.11.2019, which was confirmed by the Commissioner of Income Tax (Appeals)-National Faceless Appeal Centre (CIT(A)-NFAC).

Issue 2: Retrospective or Prospective Nature of Amendments to Section 36(1)(va) and Section 43B by Finance Act, 2021

The CIT(A) held that the amendments to Section 36(1)(va) and Section 43B by the Finance Act, 2021, which introduced Explanation-2 and Explanation-5 respectively, are retrospective in nature and applicable for the Assessment Year 2018-19. However, the Tribunal noted that various ITAT benches have ruled that these amendments are prospective and not applicable for periods before 01.04.2021. The Tribunal cited several cases, including Digiqal Solution Services Pvt. Ltd. vs. Assistant Director of Income Tax, Shand Pipe Industry Pvt. Ltd. vs. DCIT, and others, which support the view that the amendments are prospective.

Issue 3: Legality of Adjustments Made Under Section 143(1) on Debatable and Controversial Issues

The Tribunal emphasized that any adjustments under Section 143(1) on debatable and controversial issues are beyond the scope of Section 143(1). The Tribunal referenced several judgments, including those by the Delhi High Court in CIT vs. AIMIL Ltd. and CIT vs. P.M. Electronics Ltd., which held that delayed payments of employees' contributions to provident fund and ESI, if made before the due date of filing the return, do not constitute the assessee's income. The Tribunal concluded that the adjustments made by the Revenue were unfair, unjust, and bad in law. The Tribunal also noted that retrospective amendments cannot be invoked for adjustments under Section 143(1).

Conclusion:

The Tribunal set aside the impugned appellate order dated 03.12.2021 of the CIT(A) and directed the AO to delete the addition of Rs. 29,52,674/-. The Tribunal clarified that it did not express any view on whether the amendments by the Finance Act, 2021, are prospective or retrospective, as the issue was academic in nature given the decision to delete the addition.

Order Pronounced:

The appeal of the assessee was partly allowed for statistical purposes, with the order pronounced on 24.05.2022.

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