ITAT rules on finance act amendments: Contributions before filing return are valid.

The ITAT allowed the appeal of the assessee, holding that the amendments brought by the Finance Act, 2021, to Section 36(1)(va) and Section 43B are prospective and not applicable to the assessment year 2018-19. Therefore, the disallowances of Rs. 2,47,833/- for provident fund contributions and Rs. 21,067/- for ESI contributions were deleted. The judgment emphasized that contributions paid before the due date of filing the return under Section 139(1) should not be disallowed.

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Issues Involved:
1. Addition of Rs. 2,47,833/- for delay in remittance of employees' provident fund contributions.
2. Addition of Rs. 21,067/- for delay in remittance of employees' ESI contributions.

Issue-wise Detailed Analysis:

1. Addition of Rs. 2,47,833/- for delay in remittance of employees' provident fund contributions:

The assessee filed its income tax return for the assessment year 2018-19, declaring a total income of Rs. 5,32,317/-. The return was processed under Section 143(1) of the IT Act, 1961, resulting in a disallowance of Rs. 2,47,833/- due to the delayed remittance of employees' provident fund contributions. The assessee contended that these contributions were paid before the due date of filing the return of income, citing various judgments from the Rajasthan High Court, including "Rajasthan Renewable Energy Corp. Ltd." and "State Bank of Bikaner and Jaipur," which held that contributions paid before the filing of the return should not be disallowed under Section 36(1)(va) or Section 43B of the IT Act.

The CIT(A) upheld the disallowance, stating that the adjustment made by the AO fell under Section 143(1)(a)(ii) of the Act, as the assessee's return itself showed the delay in payments. The CIT(A) noted that the amendment brought by the Finance Act, 2021, clarified that Section 43B does not apply to employees' contributions and is deemed never to have applied, thus supporting the disallowance.

However, the ITAT observed that the payments were made before the due date of filing the return under Section 139(1) and referred to several ITAT decisions, including "Dhabriya Polywood Ltd. vs. ADIT," which held that the amendment by the Finance Act, 2021, is prospective and not retrospective. Therefore, the amended provisions of Section 43B read with Section 36(1)(va) do not apply to the assessment year 2018-19. The ITAT concluded that the addition of Rs. 2,47,833/- should be deleted.

2. Addition of Rs. 21,067/- for delay in remittance of employees' ESI contributions:

Similar to the provident fund contributions, the assessee faced a disallowance of Rs. 21,067/- for delayed remittance of employees' ESI contributions. The CIT(A) upheld this disallowance based on the same reasoning applied to the provident fund contributions, citing the amendment brought by the Finance Act, 2021.

The ITAT, however, reiterated its stance that the amendment is prospective and not applicable to the assessment year 2018-19. The ITAT referred to multiple decisions, including "Mohanlal Khatri vs. ACIT," which supported the view that contributions paid before the due date of filing the return under Section 139(1) should not be disallowed. Consequently, the ITAT directed the deletion of the addition of Rs. 21,067/-.

Conclusion:

The ITAT allowed the appeal of the assessee, holding that the amendments brought by the Finance Act, 2021, to Section 36(1)(va) and Section 43B are prospective and not applicable to the assessment year 2018-19. Therefore, the disallowances of Rs. 2,47,833/- for provident fund contributions and Rs. 21,067/- for ESI contributions were deleted. The judgment emphasized that contributions paid before the due date of filing the return under Section 139(1) should not be disallowed.

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