SMT. P. KAVITHA, LEGAL REPRESENTATIVE OF LATE SRI. P. GOPINATHA REDDY,BENGALURU vs. ASSISTANT DIRECTOR OF INCOME TAX, CPC, BENGALURU
What did the Tribunal hold?
The Tribunal held that the employees' contribution to PF & ESI paid before the due date of filing the return of income u/s 139(1) is an allowable deduction. The amendment by the Finance Act, 2021, to sections 36(1)(va) and 43B was held to be not retrospective.
What were the facts?
The assessee claimed deductions for employees' contribution to PF & ESI, which were paid before the due date of filing the return of income. The Assessing Officer disallowed these contributions, and the CIT(A) upheld the disallowance.
What were the issues?
Whether the disallowance of employees' contribution to PF & ESI paid before the due date of filing the return of income is justified, and whether the amendment by Finance Act, 2021, is retrospective.
Which sections of the Income-tax Act were involved?
AI-generated summary — verify with the full judgment below
Cases cited in this judgment(3)Show listHide list
Detected automatically from the text. Citations are also linked where they appear in the judgment. The count shows how many other judgments on BharatTax rely on the same authority.
- CIT v. Gujarat State Road Transport Corporation1,158 citing366 ITR 170 · 2014 · HC
- Essae Teraoka Pvt. Ltd. v. DCIT519 citing366 ITR 408 · 2014 · HC
- M.M.Aqua Technologies Limited v. CIT308 citing436 ITR 582 · 2021 · SC · Read judgment
Income Tax Appellate Tribunal, BANGALORE BENCHES “B”, BANGALORE
Before: Shri Chandra Poojari, AM & Smt.Beena Pillai, JM
Heard together (3 matters)
Read from the judgment's own cause title. This page is filed under one of them.
O R D E R Per Bench : These appeals at the instance of the assessee are directed against three separate orders of the CIT(A). The relevant assessment years are 2018-2019 and 2019-2020.
The solitary issue raised in these appeals is, whether the CIT(A) is justified in upholding the order of the A.O. in disallowing employees’ contribution to PF & ESI, which was paid before the due date of filing of the return of income u/s 139(1) of the I.T.Act.
The brief facts of the case are as follows: For the assessment years under consideration, the returns of income were filed by the assessee, declaring income -667/Bang/2021. Smt.P.Kavitha LR of Late Sri P Gopinatha Reddy. of Rs.5,59,42,380 for A.Y. 2018-2019 and Rs.1,36,24,860 for A.Y. for A.Y. 2019-2020. The assessee was served with intimation u/s 143(1) of the I.T. Act determining total income at Rs.5,98,28,360 for A.Y. 2018-2019 and Rs.1,49,27,490 for A.Y. 2019-2020. The reason for the difference between the returned income and the income determined u/s 143(1) of the I.T. Act was on account of disallowance of Rs.38,85,980 (for A.Y. A.Y.2018-2019) and Rs.13,02,627 (for A.Y. 2019-2020) being late remittance of employees’ contribution to PF and ESI under the respective Acts.
For assessment year 2018-2019, the assessee has filed a rectification application u/s 154 of the I.T.Act to CPC. The CPC rejected the rectification application, vide order dated 25.02.2020.
Aggrieved by the intimation u/s 143(1) of the I.T.Act, for A.Y. 2018-2019 and 2019-2020 and also aggrieved by the order of CPC rejecting the rectification application for A.Y. 2018-2019, the assessee preferred appeals before the first appellate authority. It was stated that the assessee had paid the employees’ contribution to PF and ESI prior to the due date of filing of the return u/s 139(1) of the I.T.Act. Therefore, it was submitted that the assessee is entitled to deduction of employees’ contribution to PF and ESI having regard to the provisions of section 43B of the I.T.Act. In this context, the assessee relied on the judgment of the Hon’ble jurisdictional High Court in the case of Essae Teraoka Pvt. Ltd Vs. DCIT, reported in 366 ITR 408 (Kar.). The CIT(A), however, rejected -667/Bang/2021. Smt.P.Kavitha LR of Late Sri P Gopinatha Reddy. the appeals of the assessee. The CIT(A) held that the issue involved in the appeals is debatable and hence appeal cannot be entertained from an order u/s 154 of the I.T.Act. It was further held that the amendment to section 36(1)(va) and 43B of the I.T.Act by Finance Act, 2021 is clarificatory and has got retrospective operation.
Aggrieved, assessee has filed these appeals before the Tribunal. The learned AR submitted that an identical issue was decided in favour of the assessee by the Tribunal in the case of M/s. Shakuntala Agarbathi Company Vs. DICT in (order dated 21.10.2021).
The learned Departmental Representative supported the orders of the Income Tax Authorities.
We have heard rival submissions and perused the material on record. On identical facts, the Bangalore Bench of the Tribunal in the case of M/s. Shakuntala Agarbathi Company Vs. DCIT (supra) by following the dictum laid down by the Hon’ble jurisdictional High Court in the case of Essae Teraoka Pvt. Ltd Vs. DCIT (supra)¸ 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) of the I.T.Act. 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 relevant finding of the ITAT in the case “7. We have heard rival submissions and perused the material on record. Admittedly, the assessee has remitted the employees' contribution to ESI before the due date for filing of return u/s 139(1) of the I.T.Act. The Hon'ble jurisdictional High Court in the case of Essae Teraoka (P.) Ltd. v. DCIT reported in 366 ITR 408 (Kar.) has categorically held that the assessee would be entitled to deduction of employees' contribution to ESI provided the payment was made prior to the due date of filing of return of income u/s 139(1) of the I.T.Act. The Hon'ble jurisdictional High Court differed with the judgment of the Hon'ble Gujarat High Court in the case of CIT v. Gujarat State Road Transport Corporation reported in 366 ITR 170 (Guj.). The Hon'ble High Court was considering following substantial question of law:- "Whether in law, the Tribunal was justified in affirming the finding of Assessing Officer in denying the appellant's claim of deductions of the employees contribution to PF/ESI alleging that the payment was not made by the appellant in accordance with the provisions u/s 36[1][va] of the I.T.Act?" 7.1 In deciding the above substantial question of law, the Hon'ble High Court rendered the following findings:- "20. Paragraph-38 of the PF Scheme provides for Mode of payment of contributions. As provided in sub para (1), the employer shall, before paying the member, his wages, deduct his contribution from his wages and deposit the same together with his own contribution and other charges as stipulated therein with the provident fund or the fund under the ESI Act within fifteen days of the closure of every month pay. It is clear that the word "contribution" used in Clause (b) of Section 43B of the IT Act means the contribution of the employer and the employee. That being so, if the contribution is made on or before the due date for furnishing the return of income under sub-section (1) of Section 139 of the IT Act is made, the employer is entitled for deduction.
The submission of Mr.Aravind, learned counsel for the revenue that if the employer fails to deduct the employees' contribution on or before the due date, contemplated under the provisions of the PF Act and the PF Scheme, that would have to be treated as income within the meaning of Section 2(24)(x) of the IT Act and in which case, the assessee is liable to pay tax on the said amount treating that as his income, deserves to be rejected.
5 ITA Nos.665-667/Bang/2021. Smt.P.Kavitha LR of Late Sri P Gopinatha Reddy.
With respect, we find it difficult to endorse the view taken by the Gujarat High Court. WE agree with the view taken by this Court in W.A.No.4077/2013.
In the result, the appeal is allowed and the substantial question of law framed by us is answered in favour of the appellant-assessee and against the respondent-revenue. There shall be no order as to costs." 7.2 The further question is whether the amendment to section 36[1][va] and 43B of the Act by Finance Act, 2021 is clarificatory and declaratory in nature. The Hon'ble Supreme Court in the recent judgment in the case of M.M.Aqua Technologies Limited v. CIT reported in (2021) 436 ITR 582 (SC) had held that retrospective provision in a taxing Act which is "for the removal of doubts" cannot be presumed to be retrospective, if it alters or changes the law as it earlier stood (page 597). In this case, in view of the judgment of the Hon'ble jurisdictional High Court in the case of Essae Teraoka (P.) Ltd. v. DCIT (supra) the assessee would have been entitled to deduction of employees' contribution to ESI, if the payment was made prior to due date of filing of the return of income u/s 139(1) of the I.T.Act. Therefore, the amendment brought about by the Finance Act, 2021 to section 36[1][va] and 43B of the I.T.Act, alters the position of law adversely to the assessee. Therefore, such amendment cannot be held to be retrospective in nature. Even otherwise, the amendment has been mentioned to be effective from 01.04.2021 and will apply for and from assessment year 2021-2022 onwards. The following orders of the Tribunal had categorically held that the amendment to section 36[1][va] and 43B of the Actby Finance Act, 2021 is only prospective in nature and not retrospective. (i) Dhabriya Polywood Limited v. ACIT reported in (2021) 63 CCH 0030 Jaipur Trib. (ii) NCC Limited v. ACIT reported in (2021) 63 CCH 0060 Hyd Tribunal. (iii) Indian Geotechnical Services v. ACIT in 2018 (order dated 27.08.2021). (iv) M/s.Jana Urban Services for Transformation Private Limited v. DCIT in ITA No.307/Bang/2021 (order dated 11th October, 2021) 7.3 In view of the aforesaid reasoning and the judicial pronouncements cited supra, the amendment by Finance Act, 2021 to Sec.36[1][va] and 43B of the Act will not have application to relevant assessment year, namely A.Y. 2019- -667/Bang/2021. Smt.P.Kavitha LR of Late Sri P Gopinatha Reddy. 2020. Accordingly, we direct the A.O. to grant deduction in respect of employees' contribution to ESI since the assessee has made payment before the due date of filing of the return of income u/s 139(1) of the I.T.Act, It is ordered accordingly.” 8.1 Therefore, the amended provisions of section 43B as well as 36(1)(va) of the I.T.Act are not applicable for the assessment years under consideration. By following the binding decision of the Hon’ble jurisdictional High Court in the case of Essae Teraoka Pvt. Ltd Vs. DCIT (supra), 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.
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