Employee welfare contribution deductions remain allowable if paid before return filing due date; Finance Act 2021 amendments apply prospectively.

Employees' contribution to provident fund and ESI paid before the due date for filing the return under section 139(1) remained deductible even if remitted after the due dates under the welfare laws, following the jurisdictional High Court view. The Finance Act, 2021 amendments to sections 36(1)(va) and 43B were treated as creating a fresh liability and were applied prospectively from 1 April 2021, because the statute did not expressly make them retrospective and the explanatory material supported prospective operation. On that basis, disallowance under section 36(1)(va) was unsustainable and the addition was deleted.

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Issues: Whether employees' contribution to provident fund and ESI deposited before the due date for filing the return under section 139(1) of the Income-tax Act, 1961, but after the due date under the relevant welfare enactments, was allowable as a deduction, and whether the Finance Act, 2021 amendments to sections 36(1)(va) and 43B operated retrospectively.

Analysis: The issue was governed by the existing view that employee's contribution, if paid before the due date for filing the return, could not be disallowed merely because the remittance was after the due date under the PF or ESI laws. The decision of the jurisdictional High Court was followed on this point. The amendments inserted by the Finance Act, 2021 were treated as imposing a fresh liability and were read as prospective from 1 April 2021, since the statute did not expressly make them retrospective and the explanatory material also indicated prospective operation.

Conclusion: The disallowance under section 36(1)(va) was unsustainable and the addition was deleted. The appeal was therefore allowed in favour of the assessee.

Ratio Decidendi: Employees' contribution to welfare funds paid before the due date for furnishing the return of income is allowable as a deduction, and the Finance Act, 2021 amendments to sections 36(1)(va) and 43B operate prospectively unless expressly made retrospective.

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