Allowability of employee contributions before return due date upheld; pre amendment delayed remittances treated as deductible for earlier years.

Whether employee contributions to provident fund and ESI paid by the employer after the statutory statutory enactment due date but before the due date for filing the income tax return are deductible for assessment years prior to AY 2021 22: the Tribunal held that the Finance Act, 2021 amendments operate prospectively from 1 April 2021 and do not apply to earlier years, applied the rule favouring the assessee where two reasonable constructions exist, followed coordinate Benches and High Court precedents treating employer deposits made before the return filing due date as allowable, and deleted additions for delayed remittance accordingly.

---

---

Issues: Whether employees' contributions to provident fund and ESI paid after the statutory due date but before the due date for filing return under section 139(1) of the Income tax Act, 1961 are allowable as deduction for assessment years prior to AY 2021-22 in view of amendments made by the Finance Act, 2021 to Section 36(1)(va) and Section 43B.

Analysis: The Tribunal examined the applicability and temporal operation of the amendments introduced by Finance Act, 2021 (inserting Explanation 2 to Section 36(1)(va) and Explanation 5 to Section 43B) and the existing judicial authorities. The Finance Act, 2021 expressly provides that the amendments take effect from 1 April 2021 (assessment year 2021-22) onward. For assessment years prior to AY 2021-22, the Tribunal followed a series of coordinate Benches and High Court decisions holding that employee contributions deposited by the employer before the due date for filing return under section 139(1) are allowable as deduction despite being deposited after the statutory due date under PF/ESI enactments. The Tribunal applied the established principle that where two reasonable interpretations of a taxing provision exist, the construction favourable to the assessee must be adopted, and it relied on binding and persuasive precedents concluding the Finance Act 2021 amendments operate prospectively and do not apply to earlier assessment years.

Conclusion: The payments of employees' contribution to provident fund and ESI made after the statutory due date but before the due date for filing return under section 139(1) are allowable as deduction for the assessment years before AY 2021-22; the additions for delayed remittance are deleted and the appeals are allowed in favour of the assessee.

---