SUPRIYA PACKAGING PVT LTD,NAGPUR vs. ASST. DIRECTOR OF INCOME TAX, CPC, NAGPUR

Appeal Number and Year of Time Barred – Assessment Number of Days ITA no.7/Nag./2022A.Y. 2018–19 51 ITA no.8/Nag./2022A.Y. 2019–20 51 ITA no.41/Nag./2022A.Y. 2019–20 40 ITA no.49/Nag./2022A.Y. 2015–16) 205 ITA no.51/Nag./2022A.Y. 2019–20 60 ITA no.52/Nag./2022A.Y. 2019–20 60 ITA no.149/Nag./2021A.Y. 2018–19 30 ITA no.150/Nag./2021A.Y. 2019–20 30 ITA no.151/Nag./2021A.Y. 2018–19 61 ITA no.164/Nag./2021A.Y. 2019–20 09 ITA no.178/Nag./2021A.Y. 2019–20 24 ITA no.182/Nag./2021A.Y. 2018–19 57 ITA no.141/Nag./2021A.Y. 2018–19 08

Ground number mentioned in Appeal Number and Sr. assessee‟s appeal which was not no. pressed by the Counsel appeared Assessment Year for the respective appeals Grounds no.5 – Education and 1. ITA no.84/Nag./2021 – A.Y. 2019–20 Higher Education Cess Ground no.8 – Education and 2. ITA no.6/Nag./2022 – A.Y. 2018–19 Higher Education Cess Ground no.7 – Education and 3. ITA no.18/Nag./2022 – A.Y. 2018–19 Higher Education Cess Ground no.7 and 8 – Education 4. ITA no.25/Nag./2022 – A.Y. 2019–20 and Higher Education Cess 24 Ground no.7 and 8 – Education 5. ITA no.30/Nag./2022 – A.Y. 2018–19 and Higher Education Cess Ground no.7 and 8 – Education 6. ITA no.31/Nag./2022 – A.Y. 2017–18 and Higher Education Cess Ground no.6 and 7 – Education 7. ITA no.32/Nag./2022 – A.Y. 2018–19 and Higher Education Cess

4. In all the appeals under consideration involve a common controversy emerged and challenged by the assessees / appellants that the disallowance made by the learned AO on account of delayed payment of the employees contribution to PF/ESIC paid after the due date of payment under the relevant statutes by invoking provisions of section 36(1)(va) r.w.s. 2(24)(x) and learned CIT(A) has confirmed the action of the Assessing Officer is highly unjustified and illegal. It is further agitated the due payment of employees’ contribution to PF/ESIC was made before the filing of return of income under section 139(1) of the Act and thus allowable.

“7.9 To decide the above ground, it is prudent to refer to the amendment in Finance Bill 2021, the amendments are made in section 36 & 43B vide clause 8 & 9. In this regard attention is invited towards section 1(2)(a) of Finance Act, 2021 wherein it has specifically mentioned “(2) Save as otherwise provided in this Act-. (a) section 2 to 88 shall come into force on the first day of April 2021”. Relating to the amendment by Finance Act 2021, Memorandum Explaining the Provisions of Finance Bill, 2021 says regarding amendment in section 43B and 36 that “These amendments will take effect from 1st April, 2021 and will accordingly apply to the assessment year 2021-22 and subsequent assessment years. For the sake of clarity, we would like to reproduce the extracts of the memorandum Explaining the Provisions in Finance Bill, 2021, which read as under :- “Though section 43B of the Act covers only employer„s contribution and does not cover employee contribution, some courts have applied the provision of section 43Bon employee contribution as well. There is a distinction between employer contribution and employee„s contribution towards welfare fund. It may be noted that employee„s contribution towards welfare funds is a mechanism to ensure the compliance by the employers of the labour welfare laws. Hence, it needs to be stressed that the employer„s contribution towards welfare funds such as ESI and PF needs to be clearly distinguished from the employee„s contribution towards welfare funds. Employee„s contribution is employee own money and the employer deposits this contribution on behalf of the employee in fiduciary capacity. By late deposit of employee contribution, the employers get unjustly enriched by keeping the money belonging to the employees. Clause (va) of sub-section (1) of Section 36 of the Act was inserted to the Act vide Finance Act 1987 as a measures of penalizing employers who mis-utilize employee„s contributions. Accordingly, in order to provide certainty, it is proposed to – (i) amend clause (va) of sub-section (1) of section 36 of the Act by inserting another explanation to the said clause to clarify that the provision of section 43B does not apply and deemed to never have been applied for the purposes of determining the ―due date‖ under this clause; and (ii) amend section 43B of the Act by inserting Explanation 5 to the said section to clarify that the provisions of the said section do not apply and deemed to never have been applied to a sum received by the assessee from any of his employees to which provisions of sub-clause (x) of clause (24) of section 2 applies. These amendments will take effect from 1st April, 2021 and will accordingly apply to the assessment year 2021-22 and subsequent assessment years. [Clauses 8 and 9] 7.10 After this amendment, several decisions by the coordinate benches of ITAT at various locations are pronounced on this issue, brief synopsis and finding on the issue are as under: i) Jagmohan Singh Vs DCIT (ITAT Chandigarh), Appeal Number: & 193/Chd/2021, Date of Judgement/Order: 15/12/2021 HELD THAT:- It is not in dispute that employees‟ contribution to ESI and PF collected by the assessee from its employees had been deposited well before the due date of filing of return of income u/s 139 (1) of the Act. We find that the issue is squarely covered by the decisions of the Hon‟ble Rajasthan High Court, Hon‟ble Himachal Pradesh High Court as well as Hon‟ble Punjab & Haryana High Court. We further note that though the Id. CIT(A) has not disputed the various decisions of Hon‟ble High Courts including the decision of the jurisdictional Himachal Pradesh High Court but has referred to the amendment brought in by the Finance Act, 2021. It is a consistent position across various Benches of the Tribunal including Chandigarh Benches that the amendment which has been brought in by the Finance Act, 2021 shall apply w. e. f. assessment year 2021 – 22 and subsequent assessment years and the impugned assessment year being assessment year 2018- 19, the said amendment cannot be applied in the instant case. Therefore the addition made by way of adjustment while processing the return of income u/s 143 (1) of the Act, amounting to ₹ 11,99,710/- so made by the CPC towards the deposit of employees‟ contribution towards ESI and PF paid before the due date of filing of the return of income u/s 139 (1) of the Act, is hereby directed to be deleted. – Decided in favour of assessee. ii) Stirred Creative Advertising Pvt. Ltd. Vs DCIT (ITAT Bangalore), Appeal Number : ITA No. 594 & 595/Bang/2021, Date of Judgement/Order : 12/12/2021 HELD THAT:- We find no merit in the argument of the ld.DR since the explanation as provided in Finance Act 2021 prescribes that the amendment in both sec.36(va) as well as 43B by inserting corresponding explanation that although impugned PF comes in the form of provision and the same is applicable from 1/4/2021 onwards only. In the present case we are concerned with the asst. year 2017-18 and the amended provision could not be applied retrospectively as it is only applicable w.e.f 1/4/2021. Being so no disallowance could be made by the AO in respect of PF/ESI paid within the due date of filing return of income. Though, it was beyond the date mentioned in the respective Act. This view of ours is supported by various judgment relied on by the ld.AR. Accordingly the appeal of the assessee is allowed. iii) Adyar Ananda Bhavan Sweets India P Ltd Vs ACIT (ITAT Chennai), Appeal Number : ITA [2015 – 5/23 402 & 403/CHNY/2021, Date of Judgement/Order : 08/12/2021 HELD THAT:- There are series of decisions of various High Courts on this issue and even Hon‟ble Jurisdictional High Court in the case of M/s. Industrial Security & Intelligence India P Ltd. [2015 - 27 MADRAS HIGH COURT] held that the payment of employees contribution in regard to PF & ESI if made before the due date of filing of return of income u/s.139(1) of the Act, the same is allowable as deduction as per the provisions of Section 2(24)(x) r.w.s. 36(1)(va) r.w.s. 43B. As before insertion of Explanation 2 to Section 36(1)(va) of the Act, there is ambiguity regarding due date of payment of employees‟ contribution on account of provident fund and ESI, whether the due date is as per the respective acts or up to the due date of filing of return of income of the assessee. As noted by Hon‟ble Supreme Court an amendment made to a taxing statute can be said to be intended to remove hardship only of the assessee and not of the Department. Imposing of a retrospective levy on the assessee would be caused undue hardship and for that reason Parliament specifically chose to make the proviso affective from a particular date. In the present case also, the amendment brought out by Finance Act, 2021 w.e.f. 01.04.2021 i.e. for and from assessment year 2021-22 of Explanation-2 to s. 36(1)(va) of the Act and not retrospectively. Thus, from the above, it is clear that the amendment brought in the statute i.e., by Finance Act, 2021, the provisions of Section 36(1)(va) r.w.s. 43B of the Act amended by inserting Explanation 2 is prospective and not retrospective. Hence, the amended provisions of Section 43B r.w.s. 36(1)(va) of the Act are not applicable for the assessment year 2018-19 but will apply from assessment year 2021-22 and subsequent assessment years. Hence, this issue of assessee‟s appeal is allowed iv) Pachouli Wellness Clinic LLP Vs ITO (ITAT Delhi), Appeal Number : ITA No: 999/Del/2021, Date of Judgement/Order : 25/11/2021 HELD THAT:- As decided in PLANMAN HR (P) LTD., 48, COMMUNITY CENTRE, NARAINA INDUSTRIAL AREA, PHASE-I, NEW DELHI. [2021 – ITAT DELHI] Delayed payments of employee‟s contribution to Provident Fund/ESIC is allowable if it is deposited before the return is filed u/s 139(1). In view of the legal position on the issue and the order of the Hon‟ble ITAT, Delhi in the appellant‟s own case [2017 – ITAT DELHI] the company is eligible for deduction made by the AO by invoking provisions of Section 36(1)(va) read with 2(24) (x) and 43B of the Act. The AO is, therefore, directed to delete the addition. – Decided in favour of assessee. v) Star Facilities Management Limited VS ITO (ITAT Delhi), Appeal Number : Date of Judgement/Order : 01/11/2021 HELD THAT:- Admittedly, the assessee, in the instant case, has deposited the employees‟ contribution to PF and ESI after the relevant date prescribed under the PF and ESI Act, but, before the due date of filing the return of income. In the case of PCIT vs. Pro Interactive Service (India) Pvt. Ltd. [2018 – DELHI HIGH COURT] has held that „the legislative intent was/is to ensure that the amount paid is allowed as an expenditure only when payment is actually made. The Hon‟ble High Court has further held that legislative intent and objective is not to treat belated payment of Employee‟s Provident Fund (EPD) and Employee‟s State Insurance Scheme (ESI) as deemed income of the employer under the Act. Tribunal in the case of CIT v. Dee Development Engineers Ltd. [2021 – ITAT DELHI] has decided the issue in favour of the assessee holding that no disallowance u/s. 36(1)(v) r.w.s. Section 2(24)(x) can be made if the employees‟ contribution to PF and ESI are deposited after the due date prescribed under the relevant Acts, but, paid before the due date of filing of return. Since the assessee, 28 in the instant case has, admittedly, deposited the employees‟ contribution to PF and ESI before the due date of filing of the return of income, therefore we hold that no disallowance u/s. 36(1)(v) r.w.s. Section 2(24)(x) can be made in the instant case – Decided in favour of assessee. vi) Lumino Industries Ltd. Vs. ACIT, order dated 17/11/2021; 17. Have heard both the parties. We note that the Finance Bill, 2021 has brought in an amendment which disallows the employees‟ contribution made in PF and ESI if not made within the due date as prescribed by the respective statutes (PF and ESI Act). So after the amendment has been inserted according to Shri Miraj D Shah takes effect from 1st April, 2021 i.e AY 2021-22 and subsequent assessment year and if the remittance of PF/ESI Employees‟ Contribution is not made within the time prescribed by the PF/ESI Act then the remittance cannot be allowed as a deduction which is prospective in operation. Whereas according to Ld. CIT(A), the amendment brought in is clarificatory in nature so, retrospective in operation. So we have to adjudicate this issue whether the amendment brought in by Finance Act, 2021 is prospective or retrospective in operation. We note that before this amendment has been inserted by Finance Bill, 2021, the Hon‟ble Jurisdictional Calcutta High Court in the case of Shri Vijayshree Ltd. Ltd.(supra), M/s Philips Carbon Black Ltd.(supra), M/s Coal India Ltd.(supra), M/s Akzo Nobel India Ltd. (supra) has held that the payment of employees‟ contribution if made by an assessee before the due date of filing of return of income u/s 139(1) of the Act, is allowable as a deduction. We note that by Finance Act, 2021, the provision of Section 36(1)(va) as well as Section 43B has been amended to this extend by inserting the Explanation 2 whereby it is clarified that the provision of Section 43B shall not apply and shall be deemed never to have been applied for the purpose of determining the due date under this clause. For ready reference, we reproduce the Explanation-2 to Section 36(1)(va) as under: “Section 36(1)(va) Explanation-2 – For the removal of doubts, it is hereby clarified that the provisions of Section 43B shall not apply and shall be deemed never to have been applied for the purpose of determining the „due date‟ under this clause‟ 18. We find that this amendment has been brought in the Act to provide certainty about the applicability of Section 43B in respect of belated payment of employees‟ contribution. In order to test whether the amendment brought in later is retrospective or not one has to apply the test as laid by the Hon‟ble Supreme Court in the case of M/s Snowtex Investment Ltd. (supra) wherein the Hon‟ble Supreme court took note of the law laid down on this issue by the Constitution Bench in M/s Vatika Township Ltd. and held that the intent of the Parliament/legislature need to be looked into for ascertaining whether the amendment should be retrospective or not. In Vatika Township Ltd. (supra) the Hon‟ble Supreme Court held that the notes on clauses appended to the Finance Bill will throw light as to the legislative intent; because it has to be borne in mind that Parliament/legislature is aware of three concepts before an amendment is brought in, which can be discerned from reading of the “Notes on Clauses” to the Bill which are (i) prospective amendment with effect from a fixed date; (ii) retrospective amendment with effect from a fixed anterior date; and (iii) clarificatory amendments which are retrospective in nature. So 29 when we adjudicate whether the view of Ld CIT(A) that the explanation 2 brought in by Finance Act, 2021 is retrospective, let us look at the “Notes on Clauses and the relevant clauses 8 & 9 of the Finance Bill, 2021 (supra) pertaining to the issue in hand which in clear and unambiguous terms spells out the intention of Parliament that the amendment shall take effect from 1st April, 2021 and therefore will accordingly apply to Assessment Year 2021- 22 and subsequent years. So since the legislative intent is clear, the amendment brought in by Finance Act, 2021 on this issue as discussed is prospective and Ld. CIT(A) erred in holding otherwise. So till AY 2021-22, the Jurisdictional High Court‟s view in favor of assessee will hold good and is binding on us. As discussed the decision of the Hon‟ble Delhi High Court in Bharat Hotels Ltd. (supra) which was in favor of revenue has not considered the decision of the Co-ordinate Division Bench decision in M/s Aimil Ltd.(supra) which is in favour of assessee. So we note that later decision of the Delhi/Hyderabad Tribunal have followed the decision favouring assessee in the light of the Hon‟ble Supreme Court decision in M/s Vegetable Products (supra). In the light of the aforesaid decision and relying on the ratio of the Hon‟ble Supreme Court in the case of Vatika Township Pvt. Ltd. (supra) and M/s Snowtex Investment Ltd. (supra) and also taking note of the binding decision of the Hon‟ble Jurisdictional Calcutta High Court on this issue before us in Shri Vijayshree Ltd. Ltd.(supra), M/s Philips Carbon Black Ltd.(supra), M/s Coal India Ltd.(supra), M/s Akzo Nobel India Ltd. (supra), we set aside the impugned order of Ld CIT(A) and direct the AO to allow the claim of deduction in respect of employees contribution shares towards ESI, PF, by the assessee before the due date of filing of return u/s 139(1) of the Act. Therefore the appeal of assessee succeeds and so, it is allowed in favor of assessee. 7.11 Few more orders by the coordinate benches of the ITAT having same finding on this issue are as under:- i) Mavinahalli Shivananjappa Vijay Kumar Vs. DCIT, order dated 13/12/2021; ii) Shri Prakash Pai Kochikar Vs. ADIT, ITA No.479/Bang/2021, order dated 09/12/2021; iii) Eskay heat Transfers Pvt. Ltd. Vs. ADIT, ITA No.534/Bang/2021, order dated 07/12/2021; iv) Anand Sweets and Savouries Vs. DCIT, ITA No.530/Bang/2021, order dated 06/12/2021; v) Transzone Logistics (India) Pvt. Ltd. Vs. DCIT, ITA No.1740/Del/2020, order dated 29/10/2021; vi) Jai Enterprises Vs. DCIT, ITA No.248/JP/2021, order dated 25/11/2021; vii) Nayrathan Jewellers Pvt. Ltd. Vs. ADIT, ITA No.470/Bang/2021, order dated 23/11/2021; viii) Abhimanyu Sharma Vs. ITO, ITA No.175/JP/2021, order dated 23/11/2021; ix) Nikhil Mohine Vs. DCIT, ITA No.37&38/Jab/2021, order dated 18/11/2021; x) DCIT Vs. Kesoram Industries Ltd., ITA No.1777/Kol/2019, order dated 28/10/2021; xi) Suba Singh Vs. ITO, ITA No.85/ASR/2021, order dated 10/11/2021; xii) Citi Centre Developers Vs. CPC, ITA No.126/Chd/2021, order dated 28/11/2021; xiii) Pee Tee Turners Vs. ADCPC, ITA No.105/JP/2021, order dated 28/11/2021; xiv) Amandeep Singh Khurana Vs. ITO, ITA No.1822/Del/2020, order dated 27/10/2021; xv) Aroon Facilitation Management Services Pvt. Vs. DCIT, ITA No.1824/Del/2020, order dated 13/10/2021; xvi) Worldwide Facility Management Services Pvt. Ltd.Vs. DCIT, ITA No.1823/Del/2020, order dated 13/10/2021; xvii) Rukmini Polytubes Pvt. Ltd. Vs. DCIT, ITA No.1855/Del/2020, order dated 13/10/2021; 30 xviii) Adama Solution P. Ltd. Vs. ADIT, order dated 13/10/2021; xix) Vansh Jain Vs. DCIT, ITA No.1853/Del/2020, order dated 13/10/2021; xx) Express Roadway P. Ltd. Vs. ACIT, ITA No.5570/Del/2017, order dated 11/10/2021; xxi) Ridhi Sidhi Mills (India) Pvt. Ltd. Vs. DCIT, ITA Nos.71&72/Jodh/2021, order dated 28/09/2021; xxii) Chodavaram Vs. ADIT, ITA No.25&28/VIZ/2021, order dated 23/09/2021; xxiii) S.V.Engineering Constructions India (P) Ltd. Vs. DCIT, ITA No.130/VIZ/2021, order dated 23/09/2021. 7.12 Moreover, it would be significant to refer to the SLP by the revenue filed before the Hon‟ble Apex Court in the case of M/s Rajasthan State Beverages Corporation Ltd., reported on 84 Taxman.com 185 [04.07.2017] wherein the SLP of revenue arising out of the order passed by the Hon‟ble Rajasthan High Court in the case of M/s Rajasthan State Beverages Corporation Ltd., in ITA No.150/2016, order dated 04.08.2016, is dismissed by the Hon‟ble Apex Court. Held That :Amount claimed on payment of PF and ESI having been deposited on or before due date of filing of returns, same could not be disallowed under section 43B or under section 36(1)(va); SLP dismissed. 7.13 On perusal of the above judgments in favour of the assessee and other quoted by the Ld DR in contrast. Having two opposite opinions on the same issue, it is a moot question that which view should be appreciated. To reach on a judgment on the controversy under this ground in absence of a direct finding of the Apex Court after amendment in the provisions by Finance Bill 2021 or a judgment by the jurisdictional High Court, nonetheless having several judgments of non- jurisdictional High Courts and Benches of ITAT decided both against as well as in favour of the assessee, to decide the issue judiciously, this would be appropriate and it is well settled law originated from case laws mentioned in ensuing paras that if two views are possible in interpreting the provisions of law in taxation, the one favourable to the assessee has to be preferred. 7.14 In Sun Export Corporation, Bombay vs Collector of Customs (1997) 6 SCC 564 it was observed that “even assuming that there are two views possible, it is well settled that one favourable to the assessee in matters of taxation has to be preferred.”. 7.14 In CIT vs. Gwalior Rayon Silk Mfg. Co. Ltd. (1992) 196 ITR 149 (SC) it has held that provisions for deduction, exemption and relief should be interpreted liberally, reasonably and in favour of the assessee. 7.15 In CIT vs. Vegetable Products Ltd., 88 ITR 192 (SC): “if two reasonable constructions of a taxing provisions are possible, that construction which favours the assessee must be adopted”. 7.16 The Hon‟ble Supreme Court in the case of CIT Vs. Vatika Township Private Limited, (2014) 367 ITR 466 (SC) has held that the intention of the legislature regarding amendment in the Finance Act, was to make it prospective in nature, which cannot be treated as declaratory/statutory or curative in nature. The relevant observations of the Hon‟ble Apex Court in this regard in para 38 are as under :-

31 “38. When we examine the insertion of proviso in Section 113 of the Act, keeping in view the aforesaid principles, our irresistible conclusion is that the intention of the legislature was to make it prospective in nature. This proviso cannot be treated as declaratory/statutory or curative in nature.” 7.17 Keeping in sight of the above discussion, in the present case which is for the asst. year 2013-14, it is an undisputed fact that the Employees contribution for EPF was duly deposited by the Assessee Company before the due date of filing of return u/s 139(1) of The Income Tax Act. The year under consideration is also before the effective date (01.04.2021, AY 2021-22 onwards) of the amended provision by Finance Bill 2021. Accordingly, in view of various judgments in the favour of assessee, disallowance could not be made in respect of PF/ESI paid within the due date of filing return of income. Therefore, it is directed to delete the disallowance made for delayed remittance of employee‟s contribution to EPF for Rs.59,30,423/-, consequently, the appeal of the assessee is allowed to this extent.

6. It is the case of the assessee before lower authorities that it has deposited the employee's contribution in EPF and ESI before the 32 due date of filing of return of income stipulated under section 139(1) of the Act.

raised by the assessee are allowed.

9. While concluding so, we also take note of the plea of the assessee that delayed payment of employee's contribution to PF/ESIC is not disallowable as the amendments to section 36(1)(va) and Section 43B effected by Finance Act, 2021 were applicable prospectively in relation to Assessment Year 2021-22 and subsequent years. Therefore, the claim of deduction of contribution to Employee's State Insurance Scheme (ESI) and Provident Fund u/s. 36(1)(va) could not be denied to the assessee in Assessment Year 2017-18 in question on the basis of amendments made by Finance Act, 2021. For this proposition, we find support from the decision of the Co-ordinate Bench of Tribunal in the case of The Continental Restaurant and Café Company v. ITO [2021] 91 ITR (Trib.)(S.N.) 60 (Bang.) and Adyar Ananda Bhavan Sweets India (P.) Ltd. v. ACIT [2022] 134 taxmann.com 56 (Chennai - Trib.). Consequently, the action of revenue on this score is set aside and cancelled.

10. In the result, the appeal of the assessee is allowed. 3. [2022] 136 taxmann.com 147 (Jabalpur-Trib) IN THE ITAT, JABALPUR BENCH Haylide Chemicals (P.) Ltd. v. Deputy Commissioner of Income-tax*IT APPEAL NO. 51 (JAB) OF 2021 [ASSESSMENT YEAR 2017-18]JANUARY 13, 2022, wherein it is held that :- Section 43B, read with sections 36(1)(va) and 139, of the Income- tax Act, 1961 - Business disallowance - Certain deductions to be allowed only on actual payment (PF and ESI contribution) - Assessment year 2017-18 - Revenue, invoking section 2(24)(x) read with section 36(1)(va), added Employees' contribution to Employee Provident Fund and Employee State Insurance Fund, to 33 assessee's returned income as same stood deposited beyond due date specified under section 36(1)(va), even as, admittedly, prior to due date of filing return of income under section 139(1) for relevant year - Whether amendments by way of Explanation 5 to section 43B and Explanation 2 to section 36(1)(va) are to take effect only from assessment year 2021-22, hence there would be no question of same being given a retrospective effect so as to apply for relevant year, sustaining impugned additions - Held, yes - Whether therefore, impugned additions, were to be deleted - Held, yes [Paras 4.2 and 4.3] [In favour of assessee] 4. [2022] 136 taxmann.com 86 (Chandigarh - Trib.)[11-01- 2022], wherein it is held that :- INCOME TAX : Where for assessment year 2019-20, employee's contribution to ESI/PF was deposited by assessee - employer before due date of filing return under section 139(1) but after due date prescribed in amended section 36(1)(va), no disallowance could be made for said assessment year as per amendment to section 36(1)(va) brought by Finance Act, 2021 which came into effect from 1-4-2021 as same has no retrospective applicability INCOME TAX : Where it was manifest from return of income along with computation of income so filed by assessee that provision for gratuity which had been debited in profit/loss account had been disallowed by assessee itself and no claim for provision for gratuity had been made by assessee while filing its return of income, addition made towards provision for gratuity was to be deleted

5. [2022] 136 taxmann.com 86 (Chandigarh - Trib.) IN THE ITAT CHANDIGARH BENCH 'B' Shakti Apifoods (P.) Ltd. v. Assessing Officer *IT APPEAL NO. 272 (CHD.) OF 2021, [ASSESSMENT YEAR 2019-20], JANUARY 11, 2022, wherein it is held that :- Section 36(1)(va), read with section 43B, of the Income-tax Act, 1961 - Employee's contributions (Finance Act, 2021 amendment) - Assessment year 2019-20 - Assessee-employer filed income-tax return - Assessing Officer disallowed expenditure with respect to employee's contribution towards PF/ESI on ground that there was delay in deposition of same by assessee as per Explanation to section 36(1)(va) - Whether no disallowance could be made for assessment years prior to assessment year 2021-22 as per amendment to section 36(1)(va) brought by Finance Act, 2021 which came into effect from 1-4-2021 as same has no retrospective applicability - Held, yes - Whether therefore, addition made by way of adjustment towards deposit of employees' contribution towards ESI and PF paid before due date of filing of return of income under section 139(1) was to be deleted - Held, yes [Para 6] [In favour of assessee] 34 5. We have also gone through the observations of the Co-ordinate Bench of the Tribunal, Nagpur Bench, in Mai Manpower Solutions LLP v/s ADIT, etc., ITA no.66/Nag./2021, etc., vide consolidated order dated 17th November 2021, (a copy of which is placed on record) and other coordinate benches of the ITAT where it has been observed that no disallowance on account of delayed payment of ESI and PF under relevant statute can be made if the payments were made before due date of filing of return of income under section 139(1), therefore decided in favour of assessee.

6. Now, to decide the applicability of the amendment in section 36(i)(a) and 43B, whether an amendment will be applicable retrospectively or prospectively, it is well settled principal that first the provisions of the act shall be followed but in case there is no mention in the Act about this, the amended provision in the Finance Act will be referred to which shall further be read in light of the Memorandum Explaining the provisions in the finance bill. To check the amendment under discussion on this test following information is gathered and extracted below:-

Relevant portion of the Finance Act 2021:-

Pertinent extract of Clause 8 and 9 of the Memorandum 7. Explaining the provisions in the finance bill 2021:- Rationalisation of various Provisions Payment by employer of employee contribution to a fund on or before due date Clause (24) of section 2 of the Act provides an inclusive definition of the income. Sub-clause (x) to the said clause provide that income to include any sum received by the assessee from his employees as contribution to any provident fund or superannuation fund or any fund set up under the provisions of ESI Act or any other fund for the welfare of such employees. Section 36 of the Act pertains to the other deductions. Sub- section (1) of the said section provides for various deductions 36 allowed while computing the income under the head Profits and gains of business or profession„. Clause (va) of the said sub-section provides for deduction of any sum received by the assessee from any of his employees to which the provisions of sub-clause (x) of clause (24) of section 2 apply, if such sum is credited by the assessee to the employee's account in the relevant fund or funds on or before the due date. Explanation to the said clause provides that, for the purposes of this clause, "due date‖ to mean the date by which the assessee is required as an employer to credit an employee's contribution to the employee's account in the relevant fund under any Act, rule, order or notification issued there-under or under any standing order, award, contract of service or otherwise. Section 43B specifies the list of deductions that are admissible under the Act only upon their actual payment. Employer's contribution is covered in clause (b) of section 43B. According to it, if any sum towards employer's contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of the employees is actually paid by the assessee on or before the due date for furnishing the return of the income under sub-section (1) of section 139, assessee would be entitled to deduction under section 43B and such deduction would be admissible for the accounting year. This provision does not cover employee contribution referred to in clause (va) of sub-section (1) of section 36 of the Act. Though section 43B of the Act covers only employer„s contribution and does not cover employee contribution, some courts have applied the provision of section 43B on employee contribution as well. There is a distinction between employer 40 contribution and employee„s contribution towards welfare fund. It may be noted that employee„s contribution towards welfare funds is a mechanism to ensure the compliance by the employers of the labour welfare laws. Hence, it needs to be stressed that the employer„s contribution towards welfare funds such as ESI and PF needs to be clearly distinguished from the employee„s contribution towards welfare funds. Employee„s contribution is employee own money and the employer deposits this contribution on behalf of the employee in fiduciary capacity. By late deposit of employee contribution, the employers get unjustly enriched by keeping the money belonging to the employees. Clause (va) of sub-section (1) of Section 36 of the Act was inserted to the Act vide Finance Act 1987 as a measures of penalizing employers who mis-utilize employee„s contributions. Accordingly, in order to provide certainty, it is proposed to – 37 (i) amend clause (va) of sub-section (1) of section 36 of the Act by inserting another explanation to the said clause to clarify that the provision of section 43B does not apply and deemed to never have been applied for the purposes of determining the ―due date‖ under this clause; and (ii) amend section 43B of the Act by inserting Explanation 5 to the said section to clarify that the provisions of the said section do not apply and deemed to never have been applied to a sum received by the assessee from any of his employees to which provisions of sub-clause (x) of clause (24) of section 2 applies. These amendments will take effect from 1st April, 2021 and will accordingly apply to the assessment year 2021-22 and subsequent assessment years. [Clauses 8 and 9]

8. On perusal of the above take out from Finance bill 2021 and explanatory Memorandum on the same issued by the Ministry of Finance, it is apparent as per Chapter 1 section 1(2)(a) of Finance Act, 2021 wherein it has specifically mentioned that “Save as otherwise provided in this Act- (a) Section 2 to 88 shall come into force on the first day of April 2021”, hence section 36 and 43 shall governed by this direction of the finance Act. Further, the clarification rendered in clause 8 and 9 of the Memorandum Explaining the provisions in the finance bill 2021 regarding amendment in section 43B and 36 that “These amendments will take effect from 1st April, 2021 and will accordingly apply to the assessment year 2021-22 and subsequent assessment years. On perusal of the above amendment in the act and explanation, it is explicitly clear that these changes will be effective from 01.04.2021 and are prospective. Therefore, respectfully following the judgment in the case of M/s Rajasthan State Beverages Corporation Ltd., reported on 84 Taxman.com 185 [04.07.2017] 38 wherein the SLP of revenue arising out of the order passed by the Hon’ble Rajasthan High Court in the case of M/s Rajasthan State Beverages Corporation Ltd., in order dated 04.08.2016, is dismissed by the Hon’ble Apex Court. Held That :Amount claimed on payment of PF and ESI having been deposited on or before due date of filing of returns, same could not be disallowed under section 43B or under section 36(1)(va); SLP dismissed.