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The Bangalore Bench of Income Tax Appellate Tribunal (ITAT) held that the assessee was entitled to the deduction of employees’ contribution of PF, and ESI as the contribution made was prior to the due date of final return.

The assessee, M/s. Infobells Interactive Solutions preferred an appeal before the First Appellate Authority. It was contended that the assessee has paid the employees’ contribution prior to the due date of final return under section 139(1) of the Act. Therefore, it was submitted assessee is entitled to the deduction of the employees’ contribution of PF and ESI having regard to the provision to section 43B of the Act. In this context, the assessee relied on the judgment of the Karnataka High Court in the case of Essae Teraoka Pvt. Ltd Vs. DCIT, reported in 366 ITR 408. The CIT(A), after noticing the judicial pronouncements in favour of the Revenue, concluded that amendment to sections 43B and 36[1][va] of the Act by Finance Act, 2021, is clarificatory and has got the retrospective operation.

In the relevant Assessment Year, return of income was filed on 02.11.2018 declaring income of Rs.2,36,35,483/-. The Central Processing Centre (CPC) issued an intimation under section 143(1) of the Income Tax Act, 1961 (hereinafter called ‘the Act’) by assessing a sum of Rs.2,36,35,483/-. The reason for the difference between returned income and the assessed income under section 143(1) of the Act was on account of a disallowance of a sum of Rs.5,47,631/- being late remittance of employees’ contribution of PF and ESI under the respective Acts.

The Coram of Accountant Member Chandra Poojari and Judicial Member, George George K. held that the position, in this case, is quite different from the Hon’ble jurisdictional High Court in the case of Essae Teraoka [P] Ltd., Vs. DCIT, reported in [2014] 366 ITR 408 [Kar] has considered the concept of ‘due date’ as appearing in 36[1][va] and section 43B of the Act and has taken the view that the assessee is entitled to the relief having regard to the use of the expression “contribution” under the Provident Fund Act.

Now it has been provided that the due date in section 43B is of no consequence to judge the applicability of provisions of section 36[1][va]of the Act and that too with effect from 01.04.2021. In other words, there is sufficient intrinsic evidence to show that these amendments are not clarificatory in nature and the mere use of the expression “it is clarified” cannot be determinative of the nature of the amendment made.

Furthermore, in the present case, Legislature has expressly given only prospective effect to these Explanations as is evident from the Memorandum Explaining the Provisions in the Finance Bill, 2021, by stating that the said amendment i.e., the insertion of another Explanation to the already existing explanation to clause [va] to sub-section [1] of section [36] of the Act, will take effect from 1st April 2021 and will accordingly apply to the assessment year 2021-2022 and subsequent assessment years. In contradistinction, the relevant Finance Act, 2003 amended section 271(1)(iii) and Explanation 4 did not speak of application and merely provided that the amendments will take effect from 01.04.2003.

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