Shalimar Agarbatti Company Vs ACIT

Here is a short overview of above case wherein it has been held that amendment by Finance Act, 2021, to section 36(1)(va) and 43B is not clarificatory

The issue was whether employees’ contribution paid by assessee before due date of filing of return of income u/s 139(1) is an allowable deduction?

Short Overview:

Assessee had filed return for releva AY. The assessee was served with intimation u/s 143(1).

The reason for the difference between the returned income and the income determined u/s 143(1) was on account of disallowance for late remittance of employees’ contribution to PF and ESI under the respective Acts.

Aggrieved, assessee preferred appeal before CIT(A) and contended that assessee had paid the employees’ contribution prior to the due date of filing of return u/s 139(1).

 Therefore, it was submitted assessee was entitled to deduction of the employees’ contribution of PF and ESI having regard to the provision to section 43B. The CIT(A) held that only employer’s contribution to the PF and ESI was entitled to deduction u/s 43B, if the payments were made prior to the due date of filing of the return u/s 139(1).

 The CIT(A) concluded that amendment to section 36(1)(va) and 43B by Finance Act, 2021, was clarificatory and had got retrospective operation. Aggrieved, assessee filed appeal before the Tribunal.

On appeal, the issue before Tribunal were as under:

1. Whether amendment by Finance Act, 2021, to section 36(1)(va) and 43B is not clarificatory?

2. Whether employees’ contribution paid by assessee before due date of filing of return of income u/s 139(1) is an allowable deduction?

ITAT observed as under:

++ the Bangalore Bench of the Tribunal in the case of M/s. Shakuntala Agarbathi Company vs DCIT by following the dictum laid down by the jurisdictional High Court in the case of Essae Teraoka Pvt. Ltd vs DCIT¸ had held that the assessee would be entitled to deduction of employees’ contribution to PF and ESI provided that the payments were made prior to the due date of filing of the return of income u/s 139(1) of the I.T.Act. It was further held by the ITAT that amendment by Finance Act, 2021, to section 36[1][va] and 43B of the Act is not clarificatory. Therefore, the amended provisions of section 43B as well as 36(1)(va) of the I.T.Act are not applicable for the assessment years under consideration.

 By following the binding decision of the jurisdictional High Court in the case of Essae Teraoka Pvt. Ltd vs DCIT , 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.

Accordingly, decide this issue in favour of the assessee and the disallowance made by the Assessing Officer is deleted. In the result, the appeals filed by the assessee are allowed.