Case Number: ITA 1294/DEL/2021
Appellant: APPT Fashion, New Delhi
Respondent: DCIT, CPC, Bengaluru
Assessment Year: 2019-20
Case Filed On: 2021-09-30
Order Type: Final Tribunal Order
Date of Order: 2022-09-13
Pronounced On: 2022-09-13
This case revolves around the disallowance of employees’ contributions to Employees’ State Insurance (ESI) and Provident Fund (PF) by APPT Fashion, New Delhi, for the assessment year 2019-20. The Centralized Processing Centre (CPC) Bengaluru disallowed these contributions while processing the return under Section 143(1) of the Income Tax Act, 1961 (the Act), and the disallowance was sustained by the Commissioner of Income Tax (Appeals) at the National Faceless Appeal Centre (NFAC).
The counsel for the appellant argued that the contributions to PF and ESI were remitted to the government account before the due dates for filing returns of income by the assessee. The counsel cited the decision of the Hon’ble Delhi High Court in the case of Pr. CIT Vs. M/s. Pro Interactive (India) Services Pvt. Ltd. and the jurisdictional High Court in the case of CIT Vs. AIMIL Ltd. 321 ITR 508, which supports that no disallowance is warranted if contributions are made before the due date of filing the return.
The department representative (DR) contended that the amendments brought by the Finance Act, 2021, to Sections 36(1)(va) and 43B of the Act were clarificatory in nature and therefore retrospective. The DR supported the orders of the CIT (Appeals) in sustaining the disallowance.
The tribunal noted that while processing the return under Section 143(1) of the Act, disallowance towards contribution to employees’ PF and ESI is not warranted as the issue is highly debatable in nature. The tribunal also noted that the issue is squarely covered by the decision of the jurisdictional High Court in the case of CIT Vs. AIMIL Ltd. 321 ITR 508. The tribunal further observed that the Hon’ble Supreme Court in the case of M.M. Aqua Technologies Ltd. Vs. CIT held that a retrospective provision in a tax act, even if clarificatory, cannot be presumed to be retrospective if it alters the law as it earlier stood.
Based on these observations, the tribunal directed the Assessing Officer/CPC to delete the disallowance of employees’ contributions to EPF and ESI as the contributions were remitted before the due date for filing the return of income.
In the result, the appeal of the assessee was allowed. The tribunal’s decision in favor of APPT Fashion sets a precedent regarding the retrospective applicability of amendments to Sections 36(1)(va) and 43B concerning the disallowance of employees’ contributions to ESI and PF.
Order pronounced in the open court on 13/09/2022.
Judicial Member: C. N. Prasad
Accountant Member: B. R. R. Kumar
Order Dated: 13/09/2022
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