Amendment in section 36(1)(va by the Finance Act- 2021 don’t have the retrospective application: Nagpur ITAT

ITAT Nagpur bench in its order Dated 17.11.2021 in the case of Mai Manpower Solutions LLP, Plot No.172, Shop No.2, Meghdoot Heights, South Ambazari, Shraddhanand Peth, Nagpur-440010 has held that amendment in section 36(1)(VA) don’t have the retrospective application.

The Nagpur ITAT observed as under:

“9. Therefore, the question is whether the said Explanation shall have retrospective effect or prospective effect?.  Once, it is held to be retrospective, the same is not allowable as deduction under the provisions of section 43B of the Act.  Therefore, it is imperative to decide whether said Explanation has retrospective or prospective effect.  The parliament in order to nullify the decisions of the various High Courts has inserted the Explanation 5.  An Explanation, which seeks to nullify judicial precedents, can have only prospective application as it change law as it earlier stood, and it has effect of widening the main provisions.  This was stated in Sedco Forex International Drill. Inc. v. CIT, (2005) 12 SCC 717 as follows: “17.  As was affirmed by this Court in Goslino Mario [(2000) 10 SCC 165] a cardinal principle of the tax law is that the law to be applied is that which is in force in the relevant assessment year unless otherwise provided expressly or by necessary implication. (See also Reliance Jute and Industries Ltd. v. CIT [(1980) 1 SCC 139.

An Explanation to a statutory provision may fulfil the purpose of clearing up an ambiguity in the main provision or an Explanation can add to and widen the scope of the main section [See Sonia Bhatia v. State of U.P., (1981) 2 SCC 585, 598] .

If it is in its nature clarificatory then the Explanation must be read into the main provision with effect from the time that the main provision came into force [See Shyam Sunder v. Ram Kumar, (2001) 8 SCC 24 (para 44); Brij Mohan Das Laxman Das v. CIT, (1997) 1 SCC 352, 354; CIT v. Podar Cement (P) Ltd., (1997) 5 SCC 482, 506].

But if it changes the law it is not presumed to be retrospective, irrespective of the fact that the phrases used are “it is declared” or “for the removal of doubts”.”

10. Further, it is expressly stated, Explanation 5 shall have effect w.e.f. 1.4.2021 only.  Therefore, having regard to legal position stated herein above it can be held that the Explanation 5 to section 43B shall have only a prospective application.  Accordingly, we hold that the ld. NFAC is not justified in disallowing the belated remittance of employees contribution to PF/ESI but paid within the due date of filing the return of income under the normal provisions of the I.T. Act.

Accordingly, we reverse the order of the ld. NFAC with this extent.  Thus, this ground of appeal stands allowed.”

The copy of the order is as under:

Amendment in section 36(1)(va by the Finance Act- 2021 don’t have the retrospective application: Nagpur ITAT