TMI Blog2022 (5) TMI 100X X X X Extracts X X X X X X X X Extracts X X X X ..... [ 2015 (7) TMI 1063 - 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 Whether by the Finance Act, 2021, the provisions of Section 36(1)(va) by inserting the Explanation 2 r.w.s. 43B of the Act have been amended, whereby it is clarified that the provisions of Section 43B of the Act shall not apply and shall be deemed ought to have been applied for the purpose of determining the due date under this clause? - We are of the view that the amendment brought in the statue 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 under consideration i.e. 2018-19 but will apply from assessment year 2021-22 and subsequent assessment years. Hence, this issue raised in assessee s appeal is allowed. - ITA. No. 117/JP/2022 ITA. No. 116/JP/2022 - - - D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ESI contribution paid before the due date of filing of return of income which are produced in written submission pages 2 3:- MONTH OF DEDUCTION CONTRIBUTION TO ESI FUND DUE DATE OF REMITTANCE DATE OF PAYMENT Remarks April 26222.00 21.05.2016 17.06.2016 Delay by 27 days May 26516.00 21.06.2016 26.09.2016 Delay by 97 days June 25964,00 21.07.201.6 26.09.2016 Delay by 67 days July 26442.00 21,08,2016 26.09.2016 Delay by 36 days August. 26904.00 21..09.201.6 26.09.2016 Delay by 5 days September 27839.00 21,10.2016 28.11.2016 Delay by 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 40 Days December 61277.00 15.01.2017 06.05.2017 Delay by 111 days January 60045.00 15.02.2017 23.05.2017 Delay by 97 Days February 60447.00 15.03.2017 23.05.2017 Delay by 69 Days March 51582.00 15.04.2017 23.05.2017 Delay by 38 Days TOTAL 697361.00 5. In first appeal the assessee carried the matter before the CIT(A) who confirmed the disallowance made by AO by observing as under:- 36(1)(va) is reproduced:- Any sum received by the assessee from any of his employees to which the provisions of the 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. Explanat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er to have been applied for the purpose of determining the due date under this clause;' It is clearly mentioned in the Finance Act, 2021 that Provision of Section 43B shall not apply in Section 36(1)(va). The addition of Rs. 10,26,853/- is hereby confirmed. The order of CPC is an per legal provisions of the IT Act, 1961. The grounds of appeal is dismissed. 6. During the course of hearing the ld. AR of the assessee prayed that the ld. CIT(A)/NFAC, Delhi has erred in sustaining the addition of Rs. 10,26,853/- on account of late payment of ESI/PF u/s 36(1)(va) of the I.T. Act. The ld. AR also relied upon ITAT, Hyderabad Bench Judgment in ITA No. 2197/HYD/2017 wherein the Bench had deleted the addition confirmed by the CIT(A) on similar issue. This, the ld. AR prayed that the addition confirmed by the ld. CIT(A) on account of late deposit of PF and ESI contribution may kindly be deleted. 7. The reliance was also placed on the decisions of the ITAT Jaipur Bench in the following cases:- Moona Dewan vs. CPC, Bengalure in ITA No. 282/JP/2021 dated 19.01.2022 (Jaipur-Trib.) M/s Punjab Engineering Works vs. DCIT in ITA No. 132/JP/2021 dated 15.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ason that the Explanation 5 was inserted by the Finance Act, 2021, with effect from 01.04.2021 and relevant assessment year before us is AY 2019-20. Therefore the law laid down by the Jurisdictional Hon ble High Court will apply and since this Explanation- 5 has not been made retrospectively. So we are inclined to follow the same and we reproduce the order of Hon ble Calcutta High Court in the case of Vijayshree Ltd. supra wherein the Hon ble Calcutta High Court has taken note of the Hon ble Supreme Court decision in CIT vs. Alom Extrusion Ltd. reported in 390 ITR 306. The Hon ble Calcutta High Court s decision in Vijayshree Ltd. supra is reproduced as under: This appeal is at the instance of the Revenue and is directed against an order dated 28th April, 2011 passed by the Income Tax Appellate Tribunal, A Bench, Kolkata in ITA No.1091/Kol/2010 relating to assessment year 2006- 07 by which the Tribunal dismissed the appeal preferred by the Revenue against the order of CIT(A). The only issue involved in this appeal is as to whether the deletion of the addition by the AO on account of Employees Contribution to ESI and PF by invoking the provision of Section 36(1)(va) re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the legislature has not only incorporated necessary amendments in Sections 36(va) as well as 43B vide Finance Act, 2021 to this effect but also the CBDT has issued Memorandum of Explanation that the same applies w.e.f. 1.4.2021 only. It is further not an issue that the forergoing legislative amendments have proposed employers contributions; disallowances u/s 43B as against employee u/s 36 (va) of the Act; respectively. However, keeping in mind the fact that the same has been clarified to be applicable only with prospective effect from 1.4.2021, I hold that the impugned disallowance is not sustainable in view of all these latest developments even if the Revenue s case is supported by the following case law. (i) CIT vs. Merchem Ltd, [2015] 378 ITR 443(Ker) (ii) CIT vs. Gujarat State Road Transport Corporation (2014) 366 ITR 170 (Guj.) (iii) CIT vs. South India Corporation Ltd. (2000) 242 ITR 114 (Ker) (iv) CIT vs. GTN Textiles Ltd. (2004) 269 ITR 282 (Ker) (v) CIT vs. Jairam Sons [2004] 269 ITR 285 (Ker) The impugned ESI/PF disallowance is directed to be deleted therefore. 10. On an identical issue, this Bench of the Tribunal vide order da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o curb the said activities and which was approved by the Hon'ble Apex Court in the case of Allied Motors (P) Ltd. (supra). 21. A conjoint reading of the proviso to Section 43-B which was inserted by the Finance Act, 1987 made effective from 01/04/1988, the words numbered as clause (a), (c), (d), (e) and (f), are omitted from the above proviso and, furthermore second proviso was removed by Finance Act, 2003 therefore, the deduction towards the employer's contribution, if paid, prior to due date of filing of return can be claimed by the assessee. In our view, the explanation appended to Section 36(1)(va) of the Act further envisage that the amount actually paid by the assessee on or before the due date admissible at the time of submitting return of the income under Section 139 of the Act in respect of the previous year can be claimed by the assessee for deduction out of their gross total income. It is also clear that Sec.43B starts with a notwithstanding clause would thus override Sec.36(1) (va) and if read in isolation Sec. 43B would become obsolete. Accordingly, contention of counsel for the revenue is not tenable for the reason aforesaid that deductions out of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... than High Court, as evident from series of decisions referred supra, as the same is binding on all the appellate authorities as well as the Assessing officer under its jurisdiction in the State of Rajasthan. 18. In light of aforesaid discussion and in the entirety of facts and circumstances of the case, the addition by way of adjustment while processing the return of income u/s 143(1) amounting to Rs 4,38,530/- so made by the CPC towards the delayed deposit of the employees s contribution towards ESI and PF though paid well before the due date of filing of return of income u/s 139(1) of the Act is hereby directed to be deleted as the same cannot be disallowed under section 43B read with section 36(1)(va) of the Act in view of the binding decisions of the Hon ble Rajasthan High Court. 11. Since the facts of the present cases are identical to the facts involved in the aforesaid referred to cases, therefore respectfully following the earlier orders as referred to herein above of the different Benches of the ITAT, the impugned additions made by the Assessing Officer and sustained by the Ld. CIT(A) on account of deposits of employees contribution of ESI PF prior to filin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of the Act. Now, the question arises, whether by the Finance Act, 2021, the provisions of Section 36(1)(va) by inserting the Explanation 2 r.w.s. 43B of the Act have been amended, whereby it is clarified that the provisions of Section 43B of the Act shall not apply and shall be deemed ought to have been applied for the purpose of determining the due date under this clause. In our opinion, this amendment has been brought in the statute book to provide certainty about the applicability of provisions of Section 43B of the Act inspite of belated payment of employee s contribution. We also noted from the memorandum explaining the provisions to Finance Act, 2021, wherein relevant Clauses to said memorandum clearly intended that the amendment shall take effect from 01.04.2021 and will accordingly apply to assessment year 2021-22 and subsequent assessment years. The relevant Clauses 8 9 of the memorandum explaining the provisions are reproduced as under:- Rationalisation of various Provisions Payment by employer of employee contribution to a fund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee 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 [1] due date‖ under this clause; and (ii) amend section 43B of the Act by inserting Explana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Finance Bill, 2002 while proposing insertion of proviso categorically states that this amendment will take effect from 1st June, 2002 . These become epigraphic words, when seen in contradistinction to other amendments specifically stating those to be clarificatory or retrospectively depicting clear intention of the legislature. It can be seen from the same notes that few other amendments in the Income Tax Act were made by the same Finance Act specifically making those amendments retrospectively. For example, clause 40 seeks to amend S.92F. Clause iii (a) of S.92F is amended so as to clarify that the activities mentioned in the said clause include the carrying out of any work in pursuance of a contract. This amendment takes effect retrospectively from 01.04.2002. Various other amendments also take place retrospectively. The Notes on Clauses show that the legislature is fully aware of 3 concepts: (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. Thus, it was a conscious decision of the legislature, even when the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Part III of the First Schedule of the Finance Act of the year in which the search is initiated under section 132 or requisition is made under section 132A of the income-tax Act. Addition of this proviso in the Finance Act, 2003 further makes it clear that such a provision was necessary to provide for surcharge in the cases of block assessments and thereby making it prospective in nature. The charge in respect of the surcharge, having been created for the first time by the insertion of the proviso to Section 113, is clearly a substantive provision and hence is to be construed prospective in operation. The amendment neither purports to be merely clarificatory nor is there any material to suggest that it was intended by Parliament. Furthermore, an amendment made to a taxing statute can be said to be intended to remove 'hardships' only of the assessee, not of the Department. On the contrary, imposing a retrospective levy on the assessee would have caused undue hardship and for that reason Parliament specifically chose to make the proviso effective from June 1, 2002. 13. As per ratio laid down by the judgment of Hon ble Supreme Court in Vatika Township P. Ltd. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X
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