Employees' PF and ESI contribution deduction allowed when paid before return-filing deadline; 2021 amendment held prospective only

Employees' contributions to PF and ESI deposited after the welfare-law due date but before the section 139(1) return-filing deadline were treated as allowable deductions, because the claim was governed by the interaction of section 36(1)(va) and section 43B. The Finance Act, 2021 amendments to sections 36(1)(va) and 43B were stated to operate from 01.04.2021 and were therefore prospective, not retrospective. For earlier assessment years, the deduction remained available where payment was made before the return-filing due date, and the related disallowance was deleted.

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Issues: Whether the disallowance of employees' contribution to PF and ESI paid after the due date under the relevant welfare laws but before the due date for filing the return under section 139(1) of the Income-tax Act, 1961 was sustainable, and whether the amendments made by the Finance Act, 2021 to section 36(1)(va) and section 43B applied retrospectively.

Analysis: The claim turned on the interaction between section 36(1)(va), which governs employees' contributions, and section 43B, which allows certain deductions on actual payment. The Tribunal followed the binding view that where employees' contributions to PF/ESI are deposited before the due date for filing the return under section 139(1), deduction is allowable. It further held that the amendments inserted by the Finance Act, 2021, including Explanation 2 to section 36(1)(va) and Explanation 5 to section 43B, impose a liability and were stated to operate from 01.04.2021, and therefore could not be applied retrospectively to earlier assessment years.

Conclusion: The disallowance was deleted and the assessee was held entitled to deduction for the employees' contributions paid before the return-filing due date. The amendment of 2021 was held to be prospective only, not retrospective.

Ratio Decidendi: Employees' contributions to PF and ESI paid before the due date for filing the return under section 139(1) are allowable for assessment years prior to 01.04.2021, and the Finance Act, 2021 amendments to sections 36(1)(va) and 43B operate prospectively.

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