Amendment to Sec 36(1)(va) and 43B of Income Tax Act will not have application for AY 2019-20: ITAT

M/s Sattva Media vs. The deputy Commissioner of Income tax

(Order pronounced in the open court on 23rd May 2022)

The assessee is a company that filed return of income for Asst. Year 2019-20 declaring total income as Rs. 1,40,05,879 which was processed u/s 143(1) of the I.T.Act. The CPC disallowed the employees’ contribution to PF and ESI to the tune of Rs. 94,49,275. The reason for making the disallowance was that the assessee did not remit the employees’ contribution to PF and ESI within the due date specified under the respective Acts.

Appeal before CIT(A): Aggrieved, the assessee preferred an appeal before the Ld.CIT(A). The Ld.CIT(A), however, dismissed the appeal of the assessee and notices that there is a difference between the employees’ contribution and the employer’s contribution and held that the employees’ contribution to ESI and PF needs to be remitted within the due date as mentioned in the respective Acts.

Aggrieved, the assessee has filed this appeal before the Tribunal.

The tribunal relied on the case of Essae Teraoka (P.) Ltd. v. DCIT, which held that “the assessee would be entitled to deduction of employees’ contribution to PF and ESI if the  payment was made prior to the due date or 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 and the employer is entitled to deduction filing of return of income u/s 139(1) of the I.T.Act.”

It was observed that the amendment brought about by the Finance Act, 2021 to section 36(1)(va) and 43B of the I.T.Act,  altered the position of law adversely to the assessee. The amendment had been mentioned to be effective from 01.04.2021 and will apply for and from the assessment year 2021-2022 onwards. The Tribunal in Spectrum Consultants India (P.) Ltd. reported in (2013) 266 CTR 94 had held that the amendment to section 36(1)(va) and 43B of the I.T.Act by Finance Act, 2021 is only prospective in nature and not retrospective. It will not have application for the relevant assessment year, namely A.Y. 2019-2020. Accordingly, the A.O. was directed to grant deduction in respect of employees’ contribution to PF and 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. Hence, the appeal filed by the assessee was allowed.

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