2022 (6) TMI 95 - AT - Income Tax

Tribunal rules in favor of assessee, allows deduction for delayed PF/ESI contributions

The Tribunal allowed the appeal in favor of the assessee, deleting the disallowance of Rs. 14,90,835/- under section 36(1)(va) due to delayed deposit of ... Deductibility of employees' contribution to provident fund and ESI under section 36(1)(va) - application of section 43B to employees' contribution - prospective operation of amendment (Explanation 2) introduced by Finance Act, 2021 with effect from 01.04.2021 - presumption against retrospective operation of taxing/amending statutes (lex prospicit non respicit)Deductibility of employees' contribution to provident fund and ESI under section 36(1)(va) - application of section 43B to employees' contribution - prospective operation of amendment (Explanation 2) introduced by Finance Act, 2021 with effect from 01.04.2021 - presumption against retrospective operation of taxing/amending statutes (lex prospicit non respicit) - Deductibility of employees' contribution to PF/ESI which was paid after the statutory due date under PF/ESI Acts but before the due date for filing the return of income. - HELD THAT: - The Tribunal examined whether delayed remittance of employees' contribution to PF/ESI (paid after the due date under PF/ESI Acts but before the due date for filing return under section 139(1)) could be disallowed under section 36(1)(va) read with section 43B. It relied upon precedents of High Courts and Tribunals holding that employees' contribution falls within the scope of section 43B and that payment made on or before the due date for furnishing return is eligible for deduction. The Tribunal further considered the amendment by Finance Act, 2021 (insertion of Explanation 2 to section 36(1)(va) and related changes to section 43B) and applied the principle that taxing amendments are presumed prospective unless a contrary legislative intent is expressed. Following decisions which construe the Finance Act, 2021 amendments as operative from 01.04.2021 (assessment year 2021-22) and not retrospectively, the Tribunal held that the post due payment in this case (A.Y. 2019-20) could not be disallowed under the pre amendment law. Accordingly, the disallowance made by the Assessing Officer was deleted and the appeal was allowed. [Paras 4, 6]Disallowance under section 36(1)(va) in respect of delayed payment of employees' contribution to PF/ESI (paid before filing of return) deleted; appeal allowed.Final Conclusion: The Tribunal allowed the appeal, deleted the disallowance of employees' contribution to PF/ESI made under section 36(1)(va) for A.Y. 2019-20, and held that the Finance Act, 2021 amendment (Explanation 2) operates prospectively from 01.04.2021 and does not affect the assessment year in question. Issues Involved:1. Confirmation of assessment made by NFAC.2. Disallowance under section 36(1)(va) due to delay in deposit of employee's contribution towards PF/ESI.3. Application of amended provisions of section 36(1)(va) and section 43B retrospectively.Issue-Wise Detailed Analysis:1. Confirmation of Assessment by NFAC:The assessee challenged the NFAC's confirmation of the assessment made by the AO CPC, which resulted in an assessed income of Rs. 8,68,84,190/- against the returned income of Rs. 8,53,93,350/-. The primary contention was that the assessment lacked proper basis and did not consider the facts and circumstances of the case.2. Disallowance Under Section 36(1)(va) Due to Delay in Deposit of Employee's Contribution Towards PF/ESI:The AO CPC disallowed Rs. 14,90,835/- under section 36(1)(va) due to the delayed deposit of employee's contributions to PF/ESI beyond the due date specified in the relevant Acts. The assessee argued that the contributions were deposited before the due date for filing the return under section 139(1) and cited judicial pronouncements from the Bombay High Court (CIT v. Hindustan Organics Chemicals Ltd. and GhatgePatil Transports Ltd.) supporting that such contributions should not be disallowed if deposited before the return filing due date.3. Application of Amended Provisions of Section 36(1)(va) and Section 43B Retrospectively:The NFAC relied on the amendments introduced by the Finance Act, 2021, to sections 36(1)(va) and 43B, applying them retrospectively to sustain the disallowance. The assessee contended that these amendments are prospective, effective from 01.04.2021, and should not apply to the assessment year 2019-20. This stance was supported by the ITAT Bangalore (Mavinahalli Shivananjappa Vijay Kumar) and ITAT Chennai (Adhyar Anand Bhavan Sweets India P. Ltd.), which held that the amendments are prospective and applicable from assessment year 2021-22.Judgment Analysis:The Tribunal reviewed the facts and judicial precedents. It noted that the contributions were deposited before the return filing due date under section 139(1). The Tribunal referenced the decisions of the Hon'ble Jurisdictional Bombay High Court and ITATs, which clarified that the amendments to sections 36(1)(va) and 43B are prospective. Citing the Supreme Court's principle in CIT v. Vatika Township (P) Ltd., the Tribunal emphasized that amendments imposing liabilities should not be applied retrospectively unless explicitly stated by the legislature.The Tribunal concluded that the CIT(A) was not justified in disallowing the deduction for the employee’s contributions deposited before the return filing due date. Consequently, it allowed the assessee's appeal and deleted the disallowance made by the AO.Final Decision:The Tribunal allowed the appeal in favor of the assessee, thereby deleting the disallowance of Rs. 14,90,835/- under section 36(1)(va). Since the main issue was resolved in favor of the assessee, the Tribunal did not find it necessary to adjudicate on ground no. 5.Order Pronouncement:The order was pronounced in the open court on 27.04.2022.