2023 (1) TMI 398 - AT - Income Tax

Amendment's Impact on Income Tax Deductions: Ruling Supports Assessee's Claim

Shri. Kakalkoppa Ningappa Harish Versus DCIT, CPC, Bengaluru.

The appeal was allowed as the tribunal held that the amendments by the Finance Act, 2021 were prospective and did not alleviate the assessee's hardship. ... Delayed Employee’s contribution u/s 36(1)(va) - HELD THAT:- The Hon’ble Karnataka High Court in the case of Essae Teraoka Pvt. Ltd [2014 (3) TMI 386 - KARNATAKA HIGH COURT] has taken the view that employee’s contribution under section 36(1)(va) of the Act would also be covered under section 43B of the Act and therefore if the share of the employee’s share of contribution is made on or before due date for furnishing the return of income under section 139(1) of the Act, then the assessee would be entitled to claim deduction. Therefore, the issue is covered by the decision of the Hon’ble Karnataka High Court. In this case there is no dispute that the assessee made payment of the Employees share of PF/ESI on or before the due date for filing return of income for AY 2017-18 u/s.139(1). The next aspect to be considered is whether the amendment to the provisions to section 43B and 36(1)(va) of the Act by the Finance Act, 2021, has to be construed as retrospective and applicable for the period prior to 01.04.2021 also. On this aspect, we find that the explanatory memorandum to the Finance Act, 2021 proposing amendment in section 36(1)(va) as well as section 43B is applicable only from 01.04.2021. These provisions impose a liability on an assessee and therefore cannot be construed as applicable with retrospective effect unless the legislature specifically says so. In the decisions referred to by us in the earlier paragraph of this order on identical issue the tribunal has taken a view that the aforesaid amendment is applicable only prospectively i.e., from 1.4.2021. We are therefore of the view that the impugned additions made u/s 36(1)(va) of the Act, deserves to be deleted. Appeal of the assessee is allowed. Issues:1. Justification of upholding the addition of Rs. 31,62,212/- u/s.43B of the Income Tax Act, 1961.2. Interpretation of amendments made by the Finance Act, 2021 to sections 36(1)(va) and 43B.3. Distinction between employees' and employer's contributions under the Act.4. Applicability of the amendments retrospectively.5. Comparison with previous judicial pronouncements.Detailed Analysis:Issue 1:The appeal focused on whether Revenue authorities were correct in adding Rs. 31,62,212/- under section 43B for delayed payment of employees' contribution to EPF and ESIC beyond the due date but before the return filing due date.Issue 2:The CIT(A) referred to the amendments by the Finance Act, 2021 to sections 36(1)(va) and 43B. The amendments clarified that section 43B does not apply to determine the 'due date' under section 36(1)(va), impacting deductions based on actual payments.Issue 3:The CIT(A) highlighted the legal distinction between employees' and employer's contributions under the Act. Failure to pay employees' contribution on time negates the employer's deduction permanently, whereas delay in employer's contribution leads to deferment of deduction under section 43B.Issue 4:The retrospective applicability of the amendments was debated. The tribunal found that the amendments were applicable prospectively from 01.04.2021, based on the explanatory memorandum to the Finance Act, 2021, and previous tribunal decisions on similar issues.Issue 5:Comparisons were drawn with judicial pronouncements like Essae Teraoka Pvt. Ltd. case by the Hon'ble Karnataka High Court, supporting the view that if the employee's contribution is made before the return filing due date, the assessee can claim a deduction.In conclusion, the appeal was allowed, emphasizing that the amendments by the Finance Act, 2021 were prospective and did not remove any hardship faced by the assessee. The judgment highlighted the importance of distinguishing between employees' and employer's contributions and upheld the assessee's claim regarding the disputed addition.