ITAT Hyderabad in the case of Valuemomentum Software Services Private Limited vs. DCIT has held that disallowance made by the Assessing Officer where the assessee has deposited the ESI/EPF contribution received from employees as per provisions of section 36(1)(va) after the due dates specified in the respective Acts but before the due date of for filing of return of income under section 139(1) of the Act shall apply prospectively from 1-4-2021. In other words, the late deposit of contribution received from employees towards Employees’ Provident Fund prior to AY 2021-22 will not attract any disallowance and the same will be allowed under section 43B for ESI/EPF contributions received from employees.
In order to ensure timely deposit of employees’ contribution to the welfare funds of the employees by the employers, it is provided that the late deposit of employees’ contribution by the employer shall never be allowed as a deduction to the employer. Finance Act, 2021 has amended the provisions of section 36(1)(va) and section 43B inserting explanations under these sections to clarify that the provisions of section 43B shall not apply and shall be deemed never to have been applied to a sum received by the assessee from any of his employees to which the provisions of subclause (x) of clause (24) of section 2 applies or for the purposes of determining the “due date” u/s 36(1)(va).
Read Also: Disallowance of Employees’ Contribution to Provident Fund and ESIC after Due Date: Budget 2021
The Memorandum explaining the Finance Bill, 2021 has stated that the given amendments are effective from 01-04-2021. Thus, these amendments are clarificatory in nature and are applicable only with prospective effect from 1-4-2021.
Read the case details.
Facts of the case:
This appeal is related to AY 2013-14. In the assessment order, the AO has disallowed a sum of Rs. 8,11,648/- under section 43B towards late deposit of employees contribution to EPF account after the due date prescribed in the respective statutes but before the filing of return u/s 139(1).
Issues:
Whether late deposit of employees contribution to provident account after the due date prescribed in the respective statutes but before the due date of filing of return under section 139(1) is allowable under section 43B?
Arguments of the department:
It was argued that the amount of employees' contribution to EPF had to be deposited before the due date prescribed in the corresponding statute than the due date for filing Section 139(1) return. The Revenue’s case in tune thereof relies on Section 36(va) read with explanation thereto that it is not Section 43B but the former provision which is applicable in such an instance.
The Decision:
The Tribunal has deleted the addition of Rs.8,11,648/- on employees provident fund after taking note of the explanatory memorandum to the Finance Act, 2021 proposing amendment in both Section 36(va) as well as Section 43B by inserting corresponding Explanations that although the impugned employees provident fund comes under the former provision only, the same is applicable from 01-04-2021 onwards. Meaning thereby that the legislature itself has condoned the impugned default before 01-04-2021. We thus delete the impugned disallowance for this precise reason alone. N
Analysis:
There was confusion regarding the applicability of the amended provisions when the amendments were introduced in the Finance Bill, 2021; whether the same will apply prospectively from 1-4-2021 or retrospectively from the date when these provisions were introduced in the Act. This is because in the provisions the amendments were introduced as an explanation and further the expression ‘for the removal of doubts…’ is held to be retrospective in nature. However, the Memorandum explaining the provisions of Finance Bill, 2021 provides contrary to this. It states that these amendments would take effect from 1st April, 2021 and will, accordingly, apply in relation to the assessment year 2021-2022 and subsequent assessment years.
This decision has clarified the position of law and thus any disallowance for late deposit of employees contribution of ESI/EPF but before the due date of filing of return under section 139(1) shall apply prospectively from AY 2021-22 and shall not have any retrospective operation.
A similar decision is rendered in the case of Salzgitter Hydraulics (P.) Ltd. vs. ITO [2021] 128 taxmann.com 192 (Hyderabad - Trib.)/ITA No. 644/Hyd./2020 decided on 15-06-2021 and it was held that the memorandum explaining the Finance Bill, 2021 has stated that these amendments are effective from 01-04-2021. It further concluded that amendments are clarificatory and are applicable only with prospective effect from 1-4-2021.
Update:
Also see the decision of ITAT Jabalpur in the case of Bromide Chemical Industries v. DCIT - [2022] 135 taxmann.com 79 (Jabalpur - Trib.) [ITA No. ITA No.39/JAB/2021] wherein it was similarly held that the amendment by the Finance Act 2021 in the provisions of section 43B and section 36(1)(va) to restrict the deduction of an employee's contribution to Provident Fund and ESI only if the same is deposited within the due date prescribed in corresponding statutes is prospective in nature, effective from Assessment Year 2021-22 as stated in notes on clauses to and Memorandum explaining Provisions of Finance Bill, 2021.
ITAT Bangalore in the case of Yeruva Prasad vs. ACIT in ITA No. 588/Bang/2021 decided on 22.12.2021 similarly held that n the case of the amended provisions of section 43B as well as 36(1)(va) of the I.T.Act are not applicable for the assessment years 2018- 2019 and 2019-2020. The employees’ contribution paid by the assessee before the due date of filing of return of income u/s 139(1) of the I.T.Act is an allowable deduction for these assessment years. 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 amending 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
Similar decisions are held in the following cases:
In regard to the payment of employees contribution of 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 a deduction as per the provisions of Section 2(24)(x) r.w.s. 36(1)(va) r.w.s. 43B of the Act. The amendment brought out by Finance Act, 2021 in the provision of Section 36(1)(va) by inserting the Explanation 2 as well as Section 43B of the Act was held to be prospective to be applicable from assessment year 2021-22
ITAT Bangalore in the case of Expat Engineering India Ltd. vs. DCIT in ITA No. 503/BANG/2022 decided on 01.08.2022 in respect of AY 2017-18 held similarly that the amendment by the Finance Act, 2021 in section 36(1)(va) and section 43B shall apply prospectively from AY 2021-22 in the following words- "7.2 The further question is whether the amendment to section 36[1][va] and 43B of the Act by Finance Act, 2021 is clarificatory and declaratory in nature. The Hon'ble Supreme Court in the recent judgment in the case of M.M. Aqua Technologies Limited v. CIT reported in (2021) 436 ITR 582 (SC) had held that retrospective provision in a taxing Act which is "for the removal of doubts" cannot be presumed to be retrospective, if it alters or changes the law as it earlier stood (page 597). In this case, in view of the judgment of the Hon'ble jurisdictional High Court in the case of Essae Teraoka (P.) Ltd. v. DCIT (supra) the assessee would have been entitled to deduction of employees' contribution to ESI, if the payment was made prior to due date of filing of the return of income u/s 139(1) of the I.T. Act. Therefore, the amendment brought about by the Finance Act, 2021 to section 36[1][va] and 43B of the I.T. Act, alters the position of law adversely to the assessee. Therefore, such amendment cannot be held to be retrospective in nature. Even otherwise, the amendment has been mentioned to be effective from 01.04.2021 and will apply for and from assessment year 2021-2022 onwards."
Lumino Industries Ltd. vs. ACIT [ITA Nos. 231 & 365/Kol/2021] [ITAT Kolkata]
Krishna Kanha Shelters Pvt. Ltd. vs. ACIT [ITA No. 53/Agr/2021] [ITAT Agra]
Sandhu Automobiles Pvt. Ltd. vs. DCIT [ITA No. 75/CHD/2022] [ITAT Chandigarh]
Shiv Veg Pro Private Limited vs. CPC [ITA No. 57/JP/2022] [ITAT Jaipur]
Vyona Logistics Private Limited vs. ITO [ITA No. 117/JP/2022] [ITAT Jaipur]
Adyar Ananda Bhavan Sweets India P Ltd vs. ACIT [ITA No. 402 & 403/CHNY/2021] [ITAT Chennai} / [2022] 134 taxmann.com 56 (Chennai - Trib.)
Gopalakrishna Aswini Kumar vs. Assistant Director of Income-tax [ITA No. 359/BANG/2021] [ITAT Bangalore] / [2022] 134 taxmann.com 18 (Bangalore - Trib.)
Mohan Ram Chaudhary vs. ITO [ITA No. 51/Jodh/2021] [ITAT Jodhpur]
Full text of the judgment:
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCHES “A” : HYDERABAD
(THROUGH VIDEO CONFERENCE) BEFORE SHRI S.S.GODARA, JUDICIAL MEMBER
AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER
I.T.A. No. 2197/HYD/2017
Assessment Year: 2013-14
O R D E R
PER S.S.GODARA, J.M. :
This assessee’s appeal for AY.2013-14 arises against the DCIT, Circle-17(2), Hyderabad’s assessment dated 27-10-2017 framed in furtherance to the Dispute Resolution Panel (‘DRP’)- 1, Bengaluru’s directions dt.01-09-2017 in F.No.367/DRP-1/ BNG/2016-17, involving proceedings u/s.143(3) r.w.s.92CA(3) and 144C of the Income Tax Act, 1961 [in short, ‘the Act’]; respectively.
Heard both the parties. Case files perused.
2. The assessee has raised its two substantive grounds in the instant appeal. Former of the said ground challenges correctness of the lower authorities’ action making arm’s length price ‘ALP’ adjustment of Rs.1,20,78,616/- qua interest on receivables involving its overseas Associated Enterprise ‘AEs’. Suffice to say, it transpires at the outset that we need not delve deeper qua the relevant facts pertaining to the instant issue. We find that assuming but not accepting that the learner lower authorities have rightly found the assessee’s interest receivables as beyond the period involving un-comparable transactions, the impugned adjustment is not liable to be sustained for the sole reason that the same has been made not as per LIBOR rate applicable in case of international transactions but after taking State Bank of India’s prime lending rate @14.45% in the Transfer Pricing Officer’s (TPO) order and upheld to the extent between 6.5% to 8% as applicable in case of domestic term deposits.
3. Learned CIT-DR’s vehement contention is that the TPO as well as the DRP have rightly treated the foregoing bench mark as per the short term deposit rate in the State Bank of India.
4. We find no merit in the instant argument since such a short term deposit cannot be taken at par with an international transaction u/s.92B of the Act since the latter involves foreign currency and overseas market conditions. In addition to this, learned lower authorities have also not adopted any comparable in the very segment as well so as to come to the conclusion that the assessee’s receivables in case of overseas AEs involved more than the market practice of reasonable time period. We keep in mind all these clinching aspects and direct the TPO to delete the impugned ALP adjustment of Rs.1,20,78,616/- in issue. The assessee’s former substantive ground stands accepted in the above terms.
5. Next comes the latter issue of Section 43B disallowance of Rs.8,11,648/- pertaining to employees provident fund. It is not in dispute that learned lower authorities held that the same had to be deposited before the due date prescribed in the corresponding statute than the due date for filing Section 139(1) return. The Revenue’s case in tune thereof relies on Section 36(va) read with explanation thereto that it is not Section 43B but the former provision which is applicable in such an instance. We find no merit in the Revenue’s foregoing stand. We take note of the explanatory memorandum to the Finance Act, 2021 proposing amendment in both Section 36(va) as well as Section 43B by inserting corresponding Explanations that although the impugned employees provident fund comes under the former provision only, the same is applicable from 01-04-2021 onwards. Meaning thereby that the legislature itself has condoned the impugned default before 01-04-2021. We thus delete the impugned employees provident fund disallowance of Rs.8,11,648/- for this precise reason alone. Necessary computation to follow as per law.
No other ground has been pressed before us.
6. This assessee’s appeal is allowed.
Order pronounced in the open court on 19th May, 2021
Hyderabad, Dated: 19-05-2021
Download Copy of the Order in ITA No. 2197/Hyd/2017 on Disallowance of Late Deposit of Employees Contribution to ESI/PF u/s 43B and 36(1)(va) from 1-4-2021 in pdf format.
(va) but before Return Filing Due Date is Prospective from 1-4-2021: ITAT Hyderabad){kind=link}
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