2022 (9) TMI 352 - AT - Income Tax

Tribunal allows deductions for employees' PF/ESI contributions under Essae Teraoka Pvt. Ltd case

The Tribunal held that the amendments to Section 36(1)(va) and Section 43B introduced by the Finance Act, 2021 were not applicable for the assessment year ... Disallowance of Employees Contributions to ESI & PFI remitted u/s 36(1)(va) - difference between the returned income and the income determined u/s 143(1) for late remittance of employees’ contribution to PF and ESI under the respective Acts - HELD THAT:- On identical facts, the Bangalore Bench of the Tribunal in the case of M/s. Shakuntala Agarbathi Company [2021 (10) TMI 1196 - ITAT BANGALORE] by following the dictum laid down in the case of Essae Teraoka Pvt. Ltd [2014 (3) TMI 386 - KARNATAKA HIGH COURT] had held that the assessee would be entitled to deduction of employees’ contribution to PF and ESI provided that the payments were made prior to the due date of filing of the return of income u/s 139(1) - It was further held by the ITAT that amendment by Finance Act, 2021, to section 36[1][va] and 43B of the Act is not clarificatory. The amended provisions of section 43B as well as 36(1)(va) of the I.T.Act are not applicable for the assessment year under consideration. By following the binding decision in the case of Essae Teraoka Pvt. Ltd [2014 (3) TMI 386 - KARNATAKA HIGH COURT] the employees’ contribution paid by the assessee before the due date of filing of return of income u/s 139(1) of the I.T.Act is an allowable deduction. Accordingly, we decide this issue in favour of the assessee and the disallowance made by the Assessing Officer is deleted. - Decided in favour of assessee. Issues Involved:1. Disallowance of Employees' Contributions to ESI & PF under Section 36(1)(va) due to delayed remittance.2. Applicability of the amendments introduced by the Finance Act, 2021 to Section 36(1)(va) and Section 43B.3. Retrospective vs. Prospective application of the amendments.Issue-wise Detailed Analysis:1. Disallowance of Employees' Contributions to ESI & PF under Section 36(1)(va) due to delayed remittance:The assessee filed the return of income for the assessment year 2020-2021, declaring total income of Rs.35,97,950. However, the total income was determined at Rs.57,44,110 under Section 143(1) due to the disallowance of Rs.21,46,158 for late remittance of employees' contributions to PF and ESI. The assessee contended that the contributions were paid before the due date of filing the return under Section 139(1) and thus should be deductible under Section 36(1)(va) read with Section 43B. The CIT(A) held that only the employer's contributions are deductible if paid before the due date of filing the return, relying on the judgment of the Apex Court in CIT Vs. Gold Coin Health Food Pvt. Ltd.2. Applicability of the amendments introduced by the Finance Act, 2021 to Section 36(1)(va) and Section 43B:The CIT(A) concluded that the amendments to Section 36(1)(va) and Section 43B by the Finance Act, 2021, were clarificatory and had retrospective effect. However, the Tribunal held that the amendments were not clarificatory but substantive, altering the position of law adversely to the assessee. The Tribunal relied on the judgment of the jurisdictional High Court in Essae Teraoka Pvt. Ltd Vs. DCIT, which allowed deductions for employees' contributions to PF and ESI if paid before the due date of filing the return under Section 139(1).3. Retrospective vs. Prospective application of the amendments:The Tribunal observed that the amendments to Section 36(1)(va) and Section 43B by the Finance Act, 2021, were explicitly stated to be effective from 01.04.2021, and thus applicable from the assessment year 2021-2022 onwards. The Tribunal cited the Supreme Court's judgment in M.M. Aqua Technologies Limited v. CIT, which held that retrospective provisions in a taxing Act cannot be presumed to be retrospective if they alter the law as it previously stood. The Tribunal also referred to several Tribunal orders that held the amendments to be prospective. The Tribunal distinguished the CIT(A)'s reliance on the Apex Court's judgment in CIT Vs. Gold Coin Health Food Pvt. Ltd., noting that the context and nature of the amendments in that case were different.Conclusion:The Tribunal concluded that the amendments to Section 36(1)(va) and Section 43B were not applicable for the assessment year under consideration. Following the jurisdictional High Court's decision in Essae Teraoka Pvt. Ltd Vs. DCIT, the employees' contributions paid before the due date of filing the return under Section 139(1) were allowable deductions. The disallowance made by the Assessing Officer was deleted, and the appeal filed by the assessee was allowed.