Finance Act 2021 Amendment w.r.t. Explanation to Sec 36(1)(va) and Sec 43B is Prospective in Nature: ITAT

ITO, Ward-2(4), Durgapur Vs. Shri Vishnu Khaitan

(Kolkata, the 7th June 2022)

The sole ground involved in the appeal of the Revenue before the tribunal is against the order of the Ld. CIT(A) which deleted the disallowance of Rs. 2,81,527 made in respect of employees’ contribution towards Employee’s Provident Fund (EPF) and Employee’s State Insurance Scheme (ESI) u/s. 36(1)(va) r.w.s. 2(24)(x) of the Income-tax Act, 1961.

The tribunal found that the issue was no longer res-integra as held by this Tribunal in the case of Lumino Industries Ltd. vs. ACIT, Circle-5(1), Kolkata in I.T.A. No.365/Kol/2021, wherein the view was taken in favour of the assessee by the Tribunal after holding that the Amendment brought in by Finance Act, 2021 w.e.f. 01.04.2021 is prospective in operation and so will be in force from AY 2021-22 onwards and not retrospective. The relevant portions of the decision read as under:

“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.”

In the challenged order of ld. CIT(A), the ld. CIT(A) had acknowledged that the assessee had made the remittance/payment of employees’ contribution towards PF & ESI before the due date of filing of return of income. Therefore, in light of the above judicial precedence, which is applicable to current issue in the instant appeal, the tribunal dismissed the appeal of the Revenue holding that the Amendment brought in by Finance Act 2021 w.e.f. 01.04.2021 by inserting an Explanation to section 36(1)(va) and section 43B of the Act is prospective in nature and would apply from AY 2021-22 onwards and, therefore, the Amendment is not applicable to this assessment year (Assessment Year 2019-20) under consideration.

Also, the Substantive grounds raised by the Revenue on the issue of deleting the disallowance of employees’ contribution towards PF & ESI were dismissed.

Therefore, the appeal of Revenue was dismissed.

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